What should investors do with SBI post Q2 results: buy, sell or hold?

State Bank of India (SBI) share price added over 6 percent in the early trade on November 5, a day after the company reported a 51.9 percent year-on-year growth in standalone profit for the September quarter at Rs 4,574 crore compared to Rs 3,012 crore in the year-ago period.

Its net interest income (NII), the difference between interest earned and interest expended, climbed 14.6 percent year-on-year to Rs 28,181.5 crore in Q2FY21 with credit growth at 6.02 percent YoY and net interest margin at 3.34 percent for the quarter.

Here is what brokerages have to say on the stock:

Motilal Oswal

The company reported a healthy performance in a challenging environment. Deposit growth stood strong and the cut in SA/TD rates enabled margin improvement. On the asset quality front, CE improved sharply to 97 percent, in line with large private peers. On the other hand, the bank expects a total asset quality impact of Rs 600 billion (2.6 percent of net advances), including restructuring of <1 percent.

The bank has prudently improved PCR over the last few years, with corporate PCR at 88 percent. It awaits healthy write-backs from the resolution of stressed assets.

Motilal Oswal sharply upgraded the earnings estimate for FY21/FY22 by 45 percent/24 percent as it factored in higher NII growth and moderation in credit cost. It projected RoA/RoE of 0.7 percent/12.4 percent by FY22. The core bank is trading at a cheap valuation of 1x FY22E core PPoP and 2.3x FY22E P/E. It reiterated "buy" with a target price of Rs 300 (0.7x Sep’22e ABV).

Prabhudas Lilladher

The SBI reported a strong earnings of Rs 45.7 billion (PLe: 37bn) as it chose to make lower provisioning on lesser slippages of Rs 28bn and adequate PCR of 70 percent and COVID provisions. NII growth of 15 percent YoY was very much in-line as margins saw a bump-up of 11bps QoQ, while lower other income offset PPOP trajectory.

The management is optimistic to end with a stress book of Rs 600 billion by FY21 with Rs 200bn of restructuring and rest slippages (Rs200bn in H2) which look fairly low. Looking at the Rs 140bn of pro-forma slippages in Q2FY21, Prabhudas Lilladher believes stress to come through higher run-rate of slippages than restructuring, though the policy of adequately providing covers risks. Retain "buy" rating with a revised target price of Rs 290 (from Rs 276) based on 0.7x core Sep-22 ABV & Rs 152 for Subs as risk-reward remains attractive.

LKP Research

LKP Research expects the bank to post a ROA/ROE of 0.5%/8.9% by FY22E led by healthy balance sheet growth along with higher PCR and stable asset quality. It values the standalone bank at PBV of 0.7xFY22E Adjusted BVPS of Rs 255 and the value of subsidiaries per share of Rs 112 to arrive at a price target of Rs 290. Recommend a "buy" with a potential upside of 41 percent.

Sharekhan

While we are cautious on PSU Banks, we find SBI better placed as compared to its peers (with respect to asset quality, capitalisation, underwriting strength etc) with business strengths (being the largest bank in India), with consistent and reasonable margin cushions, said Sharekhan.

Moreover, high coverage and improving business outlook are positive cushions. Its healthy PCR of 88.19 percent indicates less residual stress from the legacy book.

The broking house fine-tuned its estimates for FY2021E and FY2022E and introduce FY2023E estimates with this note. Maintain a "buy" rating on the stock with an unchanged SOTP-based price target of Rs 280.

Dolat Capital

The bank reiterated its guidance for restructured loans of ~1 percent and slippages of 1.7 percent for FY21E. While management feels it is well covered for the anticipated stress, with standard provisions made over the last three quarters at Rs 71 billion, loan cover at 0.3 percent of advances remains low vis a vis private peers (includes 22 percent provided against standstill NPAs), said Dolat Capital.

With its industry-best CoF and strong digital capabilities, SBI could be a key beneficiary of improving recovery trends particularly given the undemanding valuations. Maintain "buy" rating with a revised target price of Rs 280 based on 0.7x Sep-22E ABV for standalone bank and the value of its subsidiaries, implying a P/ABV of 1.4x. The stock currently trades at 1x Sep-22 P/ABV.

CLSA

The research house has reiterated "buy" on the stock and raised the target price to Rs 330 from Rs 310 per share.

The Q2 results were reassuring with NII/Core PPOP growth of 15 percent YoY. The collections at 97 percent are strongest for the company among the top banks.

Increased FY21/22/23 estimates 64/17/12 percent and CLSA expects the company to deliver 9.7/11.9 percent ROEs in FY22/23.

The valuations look cheap at current levels and expect a big rerating, reported CNBC-TV18.