SBI under pressure after Q1 results, but brokerages maintain buy

State Bank of India (SBI) slipped another 3 percent in morning trade on Monday after India’s largest public sector bank reported a net loss of Rs 4,875.85 crore for the quarter ended June as its provisions for bad loans rose by more than 70 percent year-on-year.

After falling nearly 4 percent on Friday, shares of SBI slipped by about 3 percent on Monday.

However, most of the brokerages maintain their buy rating on SBI post Q1 results. Deutsche Bank maintained buy, but also raised its 12-month target price to Rs 365 from Rs 330 earlier.

This is the third straight quarterly loss posted by the public sector lender. The lender's bottom line was also weighed down by lesser other income, which fell to Rs 6,679.49 crore, primarily because it chose to recognize and report all its treasury losses in the reporting quarter.

Total provisions during the quarter jumped by 115 percent year-on-year to Rs 19,228 crore from Rs 8,929.5 crore in June 2017. Sequentially, it fell 31.5 percent from Rs 28,096 crore in Q4 ending March 2018.

Provisions towards bad loans rose 7.5 percent YOY to Rs 13,038 crore but jumped 46 percent sequentially.

On the asset quality front, as a percentage of total loans, gross non-performing assets (NPAs) fell to 10.69 percent from 10.91 percent as on March 31. At the end of the June quarter last year, SBI's GNPA ratio stood at 9.97 percent.

Net NPA, as a percentage of total loans, came in lower at 5.29 percent, compared to 5.73 percent at the end of March and 5.97 percent at the end of June last year.

Here’s how global brokerage firms reacted post Q1 results:

Deutsche Bank: Buy| Raise target to Rs 365 from Rs 330 earlier

Deutsche Bank maintains a buy rating on SBI post Q1 results but raised its target price to Rs 365 from Rs 330 earlier.

High MTM and credit provisioning impacted the earnings. Slippages still elevated, but strong recoveries aid NPL reduction said the note. The global investment bank expects earnings recovery from Q2.

Macquarie: Neutral| Target: Rs 281

Macquarie maintains a neutral rating on SBI post Q1 results with a 12-month target price of Rs 281. The key negative was large slippages outside the watch list and weak loan growth.

The sanctity of stressed asset guidance is a big question mark and key positive was an improvement in the provision coverage ratio, said the note.

Kotak Institutional Equities: Buy| Target: Rs 370

Kotak Institutional Equities maintains a buy on SBI post Q1 results with a target price of Rs 370. Several one-offs were across various segments, but high investment provisions drove loss.

It was a much-awaited recovery in NPLs which has now begun to take shape, said the note. All conditions in place for re-rating as NPLs on positive downward trajectory, it said.