Should you buy SBI shares despite fall in Q1 profit? Here’s what brokerages say

Analysts retained their bullish view on State Bank of India (SBI) despite the lender on August 6 reported a 6.70 per cent year-on-year (YoY) fall in net profit on the back of bulky MTM losses in June quarter. The public sector lender posted a profit of Rs 6,068 crore in Q1FY23 against Rs 6,504 crore in Q1FY22. The bottom line of SBI witnessed a fall of 33.42 per cent on a quarter-on-quarter basis. On the other hand, the net interest income of the lender increased by 12.87 per cent year-on-year to Rs 31,196 crore in Q1FY23.

Overseas financial firms see up to 25 per cent upside in SBI shares post Q1 results. JP Morgan fixed a target price of Rs 650 against the current market price of Rs 530.65 on August 5. “Q1 net income was 26 per cent below estimates due to MTM loss,” JP Morgan said. On the other hand, CLSA raised the target price to Rs 660 (from Rs 615 earlier). Macquarie has set a target price of Rs 665. However, it added that MTM losses of Rs 6,550 crore were a drag on the bottom line of SBI.

Operating profit declined 32.70 per cent YoY to Rs 12,753 crore during the quarter under review. “Excluding trading income and MTM, core operating profit increased by 14.39 per cent YoY to Rs 19,302 crore in Q1FY23 from Rs 16,873 crore in Q1FY22,” SBI said in a release.

Asset quality of the public sector lender improved with the percentage of gross non-performing assets coming at 3.91 per cent in the June quarter against 5.32 per cent in the corresponding quarter a year ago. Likewise, the percentage of net NPA also improved by 77 basis points to 1 per cent against 1.77 per cent during the same period.

Brokerage LKP Securities is also positive on State Bank of India with a target price of Rs 642. “We expect the bank to post a ROA and ROE of 0.9 per cent and 15 per cent by FY24E led by healthy balance sheet growth along with higher PCR and stable asset quality,” the brokerage said.

Antique Stock Broking added that the bank’s asset quality trends and provisioning cover implies credit cost can continue to be at its cyclical lows for some time (FY23E at least) and aid ROA recovery.

“High liquidity and best-in-class liability profile positions it well to benefit from the economic recovery. Our earnings see a marginal lower revision of 2 per cent-3 per cent for FY23-FY24E. We maintain Buy with an unchanged target price of Rs 620,” Antique Stock Broking said.

Motilal Oswal Financial Services also said that a higher-than-expected treasury loss resulted in a marginal cut to our FY23 earnings estimate. However, we expect SBIN to report a strong earnings progression right from 2QFY23, resulting in a 29 per cent earnings CAGR over FY22-24.

"We estimate an RoA and RoE of 0.9 per cent and 17 per cent in FY24. SBI remains one of our conviction Buy in the sector," Motilal Oswal Financial Services said.

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