Brokerage house Motilal Oswal is bullish on State Bank of India and has recommended a buy rating on the stock. Know details
SBI Stock Price: State Bank of India (SBI) continues to strengthen its Balance Sheet and improve return ratios. Brokerage house Motilal Oswal is bullish on State Bank of India and has recommended a buy rating on the stock with a target price of Rs 600 in its recent research report. The brokerage house in its note said: “The focus remains on building a superior loan book, while maintaining strong underwriting as evident in lower stressed assets and higher PCR. This has aided in a sustained turnaround in operating performance and will drive return ratios to long-term average and possibly higher.”
“With a high share of floating-rate loans at 75 per cent, the bank remains well-placed to ride the rising interest rate environment. While Retail helped clock growth in loans in recent quarters, the bank is witnessing a sharp recovery in Corporate book, reflected by a improving utilization ratios. SBIN reported further improvement in asset quality, with PCR improving to 75 per cent (93 per cent in the corporate book). Controlled restructuring (1.1 per cent), lower SMA pool (13bp), and 100 per cent coverage on the SR portfolio provide comfort and would keep credit costs in check (estimate credit cost to remain controlled at 1 per cent in FY24),” the note added.
Stock Price History
The bank stock, which is currently trading near its 52-week high level, is up more than 8 per cent in 2022 (YTD) so far as compared to a 6 per cent fall in the benchmark BSE Sensex. The share touched its 52-week high Rs 549.05 and 52-week low Rs 401.30 on 07 February, 2022 and 23 August, 2021, respectively.
Currently, it is trading 7.25 per cent below its 52-week high and 26.9 per cent above its 52-week low.
Outlook
Over the last few years, the bank is gradually gaining market share in loans. While PSU Banks, in aggregate, lost 1,130bp in market share in loans over the last four years, SBI is an outlier with a 90bp gain to 23 per cent. Utilization levels improved by 860bp to 31 per cent in the Wholesale book, while Retail growth remains steady at 15 per cent YoY in FY22. Within Retail loans, Xpress Credit is the fastest growing segment and offers a long runway of growth. While we estimate loan growth to sustain at 13 per cent CAGR over FY22-24, we are reasonably confident of SBIN growing ahead of the market, further improving its loan market share, the note said.
The report further said: “Deposits grew 10 per cent YoY to Rs 40.5t in FY22. SBIN remains an unbeatable deposit machine, with a deposit market share of 24.6 per cent. The bank has gained 170bp in market share in deposits over the last four years. With a steady CASA ratio of 45 per cent in FY22, the cost of deposits (reported) has moderated to 3.8 per cent in FY22 from 5.1 per cent in FY19. As interest rates rise, we expect the bank to pass on some benefits to deposit holders and estimate cost of deposits at 4.2% in FY24. In addition, the C/D ratio, at 67.5 per cent (peak of 86 per cent over the past decade), is significantly lower than top private peers and system C/D ratio of 72 per cent. The domestic C/D ratio of the bank stands even lower at 66.7 per cent as of FY22. The combination of these two factors will limit the increase in funding cost and hold the bank in good stead in a rising interest rate environment.”
SBIN reported a RoE of 13.9 per cent in FY22 – the highest since FY16. With several enablers in place, it appears well positioned to surpass the 15 per cent RoE threshold in FY23 and FY24. We maintain our conviction BUY rating with a TP of Rs 600.
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