SBI hits record high on hopes of strong Q2 earnings; stock up 11% in 8 days

SBI's core fundamentals continue to be on a strong footing and improvement in systemic growth should drive incremental re-rating for the stock, according to analysts

Shares of State Bank of India (SBI) rose 2 per cent to hit a record high of Rs 579.50 on the BSE in Tuesday’s intra-day trade on expectations of strong earnings in the September quarter (Q2FY23) following ICICI Bank's healthy results for this period. 

The stock of the state-owned company surpassed its previous high of Rs 578.65, which it had touched on September 15, 2022. At 11:12 AM; SBI was trading 1.1 per cent higher at Rs 576.60 as compared to a 0.27 per cent decline in the S&P BSE Sensex.

Among PSU banks, SBI would be a key beneficiary of the systemic uptick in credit demand. With increasing signs of momentum continuing in corporate demand and a potential capex upturn in FY24, analysts believe SBI is one of the best-placed participants in the sector.

In the past eight trading days, the stock price of SBI has appreciated 11 per cent. The rating agency CARE Ratings on October 7, 2022 had reaffirmed the bank’s facilities and instrument with a stable outlook.

The report factored in the consistent improvement in SBI’s asset quality parameters over the last three years with limited slippages considering the stress induced due to COVID-19 and the resultant moderate level of credit cost, helping enhance the earnings profile. Supported by strong internal capital generation, the bank has adequate capitalisation levels and an adequate cushion to absorb any asset quality stress in the near term, CARE Ratings said. CLICK HERE FOR FULL REPORT

Meanwhile, rating agency Fitch expects SBI’s retail business to remain the key growth driver with the bank showing cautious optimism towards corporate and SME segments as interest rates rise. The bank is more focused on credit quality as its moderate capitalisation compels it to optimise capital utilisation.

The board of directors of SBI is scheduled to meet on November 5, 2022 to consider and approve the financial results for the quarter and half year ended September 30, 2022.

“Strong loan growth of around 17-18 per cent year-on-year (YoY) is expected in Q2FY23, which could be one of the highest in last five years and estimated deposit growth at 10 per cent YoY is seen lagging for SBI as well as the system. Overall, NII growth is seen at ~7 per cent YoY due to high base in Q2FY22,” ICICI Securities said in a result preview.

The brokerage firm expects slippages at around Rs 8,000-9,000 crore, overall NPA provisions are seen moderating to Rs 6600 crore. Investment provisions write-back can lead to reduced overall provisions. It expects strong profit growth on a quarter-on-quarter (QoQ) basis to around Rs 9,270 crore.

Analysts at Mirae Asset Capital Markets expect SBI earnings cycle to rebound as credit costs reduce sharply in tandem with the uptick in corporate recovery cycle. SBI’s core fundamentals continue to be on a strong footing and improvement in systemic growth should drive incremental re-rating for the stock in our view, the brokerage said.

“Q1FY23 witnessed a blip in margins, which should normalize going ahead with the bank’s liability franchise being amongst the best in the sector. While the bank may need to raise equity capital over the next 12-24months (CET1), stake sale in subsidiaries (SBI Funds, SBI General Insurance) remains another option to augment capital and may delay the eventual dilution. We value SBI using the SOTP methodology valuing core business at 1.4x PABV and subsidiaries at Rs 174 arriving at a target price of Rs 671,” it said.