168% up from a 52-week low! Should you invest in this public sector bank post Q2 results?

State Bank of India (SBI), which is hovering at a record high, has amazed investors with its outperformance on Dalal Street in the recent past. The scrip has jumped around 168 per cent to Rs 530.45 on November 4 from its 52-week low of Rs 198.10. Of late, a couple of brokerages retained their bullish view on the public sector lender post Q2 results despite the recent rally.

SBI, which is the country’s largest lender by assets, on Wednesday reported a 66.7 per cent year-on-year (YoY) and 17.26 per cent quarter-on-quarter (QoQ) growth in net profit at Rs 7,627 crore for the quarter ended September 30.
 
Net interest income (NII) grew 10.65 per cent YoY to Rs 31,184 crore. The domestic net interest margin (NIM) expanded 16 basis points YoY to 3.50 per cent.
 
Commenting on the quarterly results, Motilal Oswal Financial Services said that State Bank of India reported a steady quarter, aided by controlled provisions as asset quality showed remarkable strength, despite the impact of the second COVID-19 wave. The brokerage has set a target price of Rs 675 for SBI, indicating an upside of 27 per cent from the current market price.
 
On the other hand, Nirmal Bang Securities and JM Financial have set a target price of Rs 617 and 615, respectively, for the bank.

Provisions for non-performing assets (NPA) declined 52 per cent YoY to Rs 2,699 crore during the quarter under review. On the asset front, the bank’s gross NPA came at Rs 1.23 lakh crore as against Rs 1.25 lakh crore in the same period last year, while net NPA was at Rs 37,119 crore against Rs 36,451 crore in the year-ago quarter.
 
In percentage terms, gross NPA declined by 38 basis points YoY and 42 basis points QoQ to 4.90 per cent of total advances on the back of lower slippages and higher recoveries. Likewise, net NPA also improved by 7 basis points to 1.52 per cent.
 
“The bank has been reporting continued traction in earnings, led by controlled provisions. However, business trends remain modest, impacted by continued deleveraging by corporates. The bank has maintained a strong control on restructured assets at 1.2 per cent of loans, while the SMA pool has declined sharply. We expect the slippage trajectory to moderate further (assuming there is no third COVID-19 wave), while credit cost may undershoot the normal cyclical trends, though we are conservatively keeping credit cost at 1-1.1 per cent,” Motilal Oswal Financial Services said in a report.
 
“Overall asset quality outlook is positive as fresh slippage risks are lower. We have raised our earnings estimates and expect 14-15 per cent ROE over FY23-24E,” Nirmal Bang Securities pointed out.
 
JM Financial added that with the steady improvement in asset quality and return profile, a pick-up in credit growth could be the next trigger for incremental stock price performance.

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