SBI trades flat; underperforms in a firm market post mixed Q2 earnings

Shares of State Bank of India (SBI) traded 0.43 per cent lower at Rs 576.65 on the BSE on Monday at 11:45 AM; in an otherwise firm market after the bank reported 8.03 per cent year-on-year (YoY) growth in net profit at Rs 14,330 crore for the quarter ended September 2023 (Q2FY24) on healthy net interest income (NII) and a decline in loan loss provisions. 

SBI net profit beat analysts estimates, aided by lower provisions even as bank made higher provisioning towards wage revisions.

The stock opened nearly 1 per cent higher at Rs 583 on the BSE. It hit a low of Rs 573.20 in intra-day trade so far. In comparison, the S&P BSE Sensex was up 0.55 per cent at 64,719.

In the past one month, SBI has declined 3 per cent, as compared to 2 per cent decline in the benchmark index. Thus far in the calendar year 2023, the stock has slipped 6 per cent, as against nearly 6 per cent rally in the Sensex.

SBI’s operating profits declined to Rs 19,416 crore in Q2FY24 from Rs 21,120 crore in Q2FY23 and Rs 25,296 crore in Q1FY24 mainly due to a higher provision for a proposed wage hike (about 14 per cent) and pension provisions.

Its net interest income (NII) expanded by 12.27 per cent year-on-year to Rs 39,500 crore in Q2FY24 from Rs 35,183 crore in the same quarter a year ago. The improvement in yields on advances and strong credit offtake supported healthy growth in NII.

Net interest margins (NIMs) for domestic operations moderated by 12 basis points to 3.43 per cent in Q2FY24 from 3.55 per cent in Q2FY23.

The asset quality profile improved with gross non-performing assets (NPA) declined to 2.55 per cent in September 2023 from 3.52 per cent in September 2022. They were at 2.76 per cent in June 2023. The net NPAs also declined to 0.64 per cent in September 2023 from 0.80 per cent a year ago. Sequentially it declined from 0.71 per cent.

Guidance of 12-14 per cent growth in advances in FY24E with steady margins (~3-5 bps decline in 2HFY24) remains positive. Provision on wage arrears is complete and occurrence of such one-off is ruled out in near term. Healthy business growth along with gradual improvement in RoA at ~1 per cent is expected to boost valuation ahead, ICICI Securities said in a note.

SBI delivered a steady quarter, with a beat on profitability aided by lower provisions and steady revenue growth. Opex was high due to high wage provisions, effective November 2022, hurting PPoP growth. Margins declined 4bp QoQ and the management expects a further 3-5bp compression, though the bank has levers in place (CD ratio, MCLR repricing) to maintain stable margins, Motilal Oswal Financial Services said in Q2 result update.

Business growth was healthy, with most business segments showing traction (barring corporate portfolio). Asset quality remained robust as net NPA ratio improved further and the restructured book remained in control at 0.6 per cent, along with lower SMA pool at 12bp of loans, the brokerage firm said. It estimates SBI to deliver FY25E RoA/RoE of 1.1 per cent/18.3 per cent and reiterate BUY rating with an unchanged target price of Rs 700 per share.

As per the bank, credit quality in unsecured loans is strong since 82 per cent of customers are working with armed forces or Government and GNPA ratio is low at 0.7 per cent. NIM performance for SBI was superior to peers as decline in domestic NIM was lesser at 4bps QoQ, according to analysts at Prabhudas Lilladher.

Bank sees limited NIM compression in H2FY24 which would be neutralized by better LDR (currently 71.3 per cent). On capital SBI is targeting reach CAR/CET-1 of 15 per cent/11 per cent by FY24 mainly by plough back of profits (no fund raise), the brokerage firm said in the result update.