sbi share price: Basic radar: 5 reasons why SBI is an attractive buy at current levels; re-rating possible | Rare Techy
The stock has rallied more than 40% from its March 2022 lows to hit a new record high of Rs 622 on November 7, 2022.
Long-term investors can buy now or on discounts for a possible target above Rs 700 in the next 12 months, experts suggest.
Rahul Malani, Banking and NBFC Analyst, Fundamental Research at Sharekhan by SBI The public sector remains a key beneficiary of the improved outlook in the public sector, driven by accelerating credit growth and favorable credit costs over the medium term. .
“The bank has seen a significant reduction in total stressed assets over the last few months, so there has been consistent performance in the stock over the past few months. We expect further appreciation in the stock,” he said. said
As the macroeconomic environment continues to improve, brokerage firms see an upside risk to SBI’s earnings driven by rising interest rate cycles, continued healthy credit growth, and lower credit costs driven by higher margins.
Rahul Malani of Sharekhan by BNP Paribas highlights 5 reasons why SBI is a strong buy at current levels:
1) NIMs to get higher:
Of the total advances, ~75% are revolving loans – 41% linked to MCLR and 34% linked to external benchmark lending rates (EBLR). The bank has a high mix of current loans and a healthy CASA mix (~43%) will support margins in a high interest rate environment.
The bank is also witnessing rapid credit growth (21%YoY, 5% QoQ vs. 16% YoY, 3% QoQ in Q1FY2023 driven by corporate and domestic.
“We expect ~20-25 bps margin improvement from FY2022, driven by re-rating of non-performing loans. Strong retail credit growth in the high yield segment and offtake of higher term loans that driven by capex demand in the domestic corporate book will also help in improving margins,” said Malani.
2) Establishing strong credit that may continue:
Credit growth in Q2FY23 (21% YoY / 5% QoQ) driven by sales, domestic corporate book and external book is increasing. Sales portfolio growth was healthy at 19% YoY in Q2FY23 vs ~15% YoY in FY2022.
Among retail loans, the share of home loans and Xpress credit (personal loans) both improved by a total of 81%. The bank is seeing good success in introducing approved personal loan offers through the YONO app.
The bank expects to maintain a high loan growth trajectory as there is good demand visibility in retail and a strong line in the corporate and SME books.
3) Offers stable capital quality and, as a result, low credit costs:
Net NPA is at a historic low (0.8%). We do not anticipate any material asset quality risk and expect overall asset quality to improve further. The quality of the company’s capital remains strong.
“We have seen a strong recovery in retail growth, especially the unsecured book, but the focus here is still on the quality consumer segments (mostly government payrolls),” Malani said.
“We believe that lower stress in the system, more provisions, and higher coverage ratio (~78%) will result in lower cost of credit for the bank,” he added.
4) Rate of Return Development:
SBI’s operating metrics with healthy loan growth, margin improvement, and reduced attrition resulting in lower core cost of credit are likely to result in improved return on equity in the near to medium term.
The balance sheet is strong as there are high provisions on stressed accounts (96% PCR on corporate NPAs), and the bank is well positioned to gain market share on the business front.
SBI’s strong deposit portfolio and better performance from companies are likely to benefit business. “We see margin risk due to the higher interest rate cycle and lower cost of credit due to the poor credit cycle, which should lead to an improved rate of return profile,” Malani said.
Sharekhan has a buy price on SBI with a PT of Rs. 710. SBI remains the top choice among PSUs. At CMP, SBI trades at 1.1x and 1.0x its underlying FY2023E and FY2024E BV, respectively.
(Disclaimer: Suggestions, recommendations, views and opinions are the experts’ own. These views do not represent the Economic Times)