Shares of the State Bank of India (SBI) rallied over 2 percent to hit a 52-week high of Rs 435.20 apiece on Tuesday. The stock price has gained around 22 percent in the last month and it is up more than 56 percent Year-To-Date (YTD).
Global brokerage CLSA sees a further 50 percent upside on the stock and has set a target price of Rs 650 per share while maintaining a Buy call. SBI is one of CLSA's top financial picks.
On May 21, the country’s largest lender had reported a net profit of Rs 6,450.7 crore for the quarter ended March 2021, registering a jump of 80.1 percent from Rs 3,580.8 crore in the year-ago period.
The bank's net interest income (NII) during Q4FY21 rose 18.9 percent to Rs 27,067 crore as against Rs 22,767 crore, Year-on-Year (YoY). Asset quality of the lender also improved during the quarter.
"FY21 pandemic performance has surprised positively and we see investors, especially FIIs, interested in SBI post 2HFY21, as the strong performance is not a flash in the pan," CLSA said.
The brokerage believes SBI is just not a value trade and relatively will do well on asset quality and estimates ROEs to increase to 15 percent by FY23CL.
"We have been positively surprised by asset quality resilience for all large banks and more so for SBI. FY21 indicates that the corporate credit cycle has turned, reflected in low corporate slippages at ICICI Bank, Axis Bank, and SBI. While retail slippages at 0.4% is a big surprise, we estimate SBI's credit costs through FY12-21 were always 40-60% lower than ICICI Bank/HDFC Bank due to loan/customer mix,” CLSA said.
CLSA expects system loan growth recovery to be gradual (7%/9% in FY22/23CL) and factors in similar growth outcomes for the SBI.
With NIMs improving through FY21 and muted OPEX growth (ex one-offs), it expects 11% PPOP Cagr over FY21-23CL.
Further, SBI's CET-1 at ~10% in FY21 is lower than private banks. With a gradual credit recovery, CLSA expects earnings-driven CET-1 improvement of +100 bps. So expect a capital raise only if the growth outlook improves in 2HFY22.
"SBI's multiples have increased to 0.8x Mar-23book from & 0.3x Mar-23 book, but with +15% ROE expectation, we still see a deep value. We continue to highlight that SBI has gained loans/deposits/CASA and retail loan market share over last decade unlike PSU peers and we do not consider SBI just a value trade,” CLSA said.
SBI’s cost-income has increased to 54 percent due to elevated retirement/wage revision provisions. While high employee costs is a long-term constraint, lumpy FY21 provisions would reduce from FY22CL leading to some improvement in cost income, it added.
On Tuesday, the shares of SBI closed 1.97 percent higher at Rs 432.60 apiece on the BSE.
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First Published: IST