SBI stock hits 3-month high ahead of Q2 results; gains 10% in 2 weeks

Analysts believe SBI could sustain its outperformance (vs. private peers) in unsecured retail in the current environment, as delivered during the pandemic.

Shares of State Bank of India (SBI) moved higher by nearly 1 per cent to Rs 862.45, hitting an over 3-month high on the BSE in Thursday’s intra-day trade in an otherwise weak market ahead of its financial results for the second quarter ended September 2024 (Q2FY25). 

 

The stock of the largest state-owned bank recovered 2 per cent from its intra-day’s low of Rs 846.70. In comparison, the BSE Sensex was down 0.96 per cent at 79,608 at 02:15 pm.  In the past two weeks, SBI has rallied 10 per cent. It had hit a record high of Rs 912.10 on June 3, 2024.

 

 

A meeting of the Central Board of the SBI will be held on Friday, November 8, 2024 at Mumbai, to consider the financial results of the Bank for the quarter and half year ended September 30, 2024, the bank said in an exchange filing.

 

Analysts expect that SBI will continue to maintain its steady growth in advances, deposits, and a healthy profitability profile in the medium term, while maintaining stable asset quality and comfortable capitalisation levels.

 

CARE Ratings notes that non-performing asset (NPA) levels in the personal loan segment remained below 1 per cent. Although the bank witnessed growth in corporate advances, its focus on retail is expected to continue and drive credit growth in the near term. For the June quarter (Q1FY25), gross advances grew 15.39 per cent year-on-year (YoY) to Rs 38.1 trillion against gross advances of Rs 33.0 trillion in Q1FY24. As on June 30, 2024, retail advances stood at 13.60 per cent, Agriculture advances stood at 17.06 per cent and MSME advances stood at 19.87 per cent of total advances.

 

As of June 30, 2024, SBI’s gross and net NPL ratios decreased to 2.2 per cent and 0.6 per cent, respectively, from 2.7 per cent and 0.7 per cent a year earlier. SBI’s asset quality parameters saw improvement in the last three years with lower slippages and prudent provisioning. As a result, moderation in credit cost has helped the bank’s earnings profile and improved profitability. The bank’s capitalisation levels remain adequate and are likely to be supported by internal accruals in the medium term, CARE Ratings said in its rationale.

 

Analysts at ICICI Securities believe, stable asset quality outcomes in Xpress credit and overall asset quality could allay concerns on any kitchen sinking associated with the change of guard.

 

While we acknowledge that RoA has peaked, we believe SBI should still deliver strong RoE and RoRWA. The stock is trading at levels closer to its 10-year average valuation; however, the expected RoA for the next two years is almost double of its 10 years’ average, with less riskiness in the balance sheet, the brokerage firm said in its company update.

 

The valuation should also be seen in the context of the bank gaining credit market share for the next two years, and relatively strong positioning on LDR, LCR and regulatory retail. We also believe SBI could sustain its outperformance (vs. private peers) in unsecured retail in the current environment, as delivered during the pandemic, purely due to its predominant share of less-risky government employees, analysts said.