SBI zooms to 52-week high on highest-ever PAT in Q2

The highest-ever quarterly profit in the September quarter of this fiscal helped the stock of State Bank of India (SBI) zoom to its 52-week high of ₹622.90 on Monday, as analysts revised price target higher. However, the stock ended the day at ₹614.20, up over ₹20 or 3.44 per cent higher over Friday’s close of ₹593.75 on the BSE. The bank reported a 74-per cent growth in net profit year-on-year at ₹13,265 crore for the quarter.

The bank reported a robust performance in its loan book too, while also recording a significant drop in slippages. Announcing the quarterly results, Dinesh Kalra, Chairman, SBI, termed the September quarter “one of the busiest” the bank has witnessed lately in terms of advances, adding that he expected FY23 loan growth to be around 14–16 per cent.

All-round performance

Describing SBI’s results for the quarter, JM Financial said in its report that it was “characterised by a solid performance across parameters: healthy core-PPOP growth of 16 per cent (adjusted for one-offs in base) led by sharp uptick in Net Interest Margins; strong loan growth driven by an all-round growth across segments; and continued robust performance on the asset-quality front.”

Santanu Chakrabarti, Analyst – Banking and Finance, BNP Paribas India, said: “The recent dramatic drop off in SBIN’s slippages run-rate has increased our confidence in its asset-quality insulation for the balance sheet. The organic improvement was critical in the case of SBIN as its provisioning buffer as well as baseline potential stressed-asset quantum lagged the comfort that its private peers enjoyed. Leverage remains high, making the development especially welcome.”

LKP Securities pointed out to the fact that the bank witnessed “better-than-expected advance growth (21 per cent y-o-y and 5 per cent q-o-q) and steady deposit base (10.6 per cent y-o-y and 3.4 per cent q-o-q) sequentially with better liquidity position”. Motilal Oswal Research added, “High mix of floating loans, which will benefit from loan re-pricing, will continue to support the NII and overall earnings even as deposit cost could see some increase.”

ICICI Securities in a note said that SBI’s share price has surged over 2x in the past five years. “We believe SBI with its humongous size has reported consistently upbeat performance with this quarter seeing above par growth in earnings and return ratios.” The stock, long due for re-rating, should see a strong positive reaction, it added.

Headwinds

However, HDFC Securities was a little apprehensive about “impending headwinds”: softer loan growth, given balance sheet size; and catch-up on deposit mobilisation and deposit pricing (deposit growth currently at 10 percentage points below loan growth), “given tightening liquidity, both of which impede any material upgrade in our forecasts and the valuation multiple (RoA still hovering around 0.8 per cent),“ it added.

Key downside risks include inflation-interest rate and GDP growth dynamic, Santanu Chakrabarti added.