SBI stock may gain 22% to hit Rs 1,000-mark, rally may be gradual: Analysts

SBI stock price: On the bourses, SBI stock price hit a record high of Rs 839.6 apiece on the BSE, soon after the result announcement on May 9

SBI Q4 results analysis: State Bank of India's (SBI's) strong earnings beat in the March quarter (Q4) of financial year 2023-24 (Fy24) has boosted confidence among analysts that the stock may rally up to Rs 1,000-mark over the next 12 months -- about 22 per cent higher from current levels.

The rally, however, may not be steep given its rich valuations, they added.

"We value SBI stock at 1.5X (adjusted) book ,and 10X FY26 EPS for return on equity (RoEs) of around 15 per cent. Valuations are now getting closer to frontline private banks (IndusInd Bank trading at 1.4X FY26 book), which implies that the risk-reward has diminished even if the business is in a relatively strong position," said analysts at Kotak Institutional Equities led by M B Mahesh. The brokerage has raised its target price on SBI stock to Rs 950 from Rs 850.

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On the bourses, SBI stock price hit a record high of Rs 839.6 apiece on the BSE, soon after the result announcement on May 9. It, however, ended 0.16 per cent lower at Rs 818.35 per share on the BSE on Friday, as against the benchmark S&P BSE Sensex's 0.36 per cent gain.

During Q4FY24, SBI reported a standalone net profit of Rs 20,698.35 crore, up 24 per cent year-on-year (Y-o-Y) and 126 per cent quarter-on-quarter (Q-o-Q), against expectations of muted growth.

Operationally, net interest income (NII) rose 3 per cent Y-o-Y to Rs 41,656 crore, while net interest margin (NIM) expanded unexpectedly to 3.30 per cent from 3.22 per cent Q-o-Q.

"SBI's NIM expanded by 8bp Q-o-Q to 3.3 per cent on the back of a robust broad-based loan growth of 5 per cent Q-o-Q/15 per cent Y-o-Y to Rs 37.67 trillion and relatively slower deposit growth of 3 per cent Q-o-Q/11 per cent Y-o-Y. Ample liquidity is advantageous for the bank, with the loan-to-deposit ratio (LDR) comfortably at 75 per cent, lowest among peers," highlighted those at InCred Equities.

Steady margins in an aggressively competitive environment, coupled with strong asset quality in personal unsecured loans and corporate loans adds to the comfort, analysts at the brokerage said giving 'Add' rating on SBI with a target price of Rs 1,000 (Rs 800 earlier) at 1.9x FY26F P/ABV (price-to-adjusted book value).

Analysts believe the near-term outlook for SBI has strengthened led by our higher-for-longer interest rate view, which should keep NIMs at current levels. Additionally, SBI has the benefit of a low domestic credit/deposit ratio, which could increase significantly.

"While the stock offers a compounding opportunity, it is already trading at 1.2x FY26 standalone book value, leaving limited scope for a re-rating," HSBC said in a results review report. The brokerage has a 'Hold' rating with an increased target price of Rs 900 from Rs 700.

Earnings upgrade

Given SBI's strongest earnings among peers, beating expectations on core NIM, core operating profit, and net profit, most brokerages have increased their earnings estimates for FY25 and FY26.

HSBC, for instance, has raised earnings per share (EPS) estimates by 8.1 per cent for FY25, 12.2 per cent for FY26, and 8.6 per cent for FY27 driven by an increase in estimated average NIM to 2.85 per cent over FY25-27, and lower estimated credit cost to 45/50bp from 50/55bp over FY26/27 to reflect a better asset quality performance.

"We upgrade our FY25 net profit estimate by 9 per cent to factor in better NIMs and lower credit cost, while we largely maintain FY26 estimates. We expect a return on asset (RoA) of 1 per cent. While valuations leave limited upside in the near term, the bank's balance sheet positioning is strong, providing comfort," said Sohail Halai of Antique Broking in a co-authored report.