Buy State Bank of India shares for up to 32% rally, brokerage houses expect robust earnings growth

State Bank of India’s stock price could see a strong rally thanks to strong earnings and an improving balance sheet.

State Bank of India’s share price could see a strong rally thanks to strong earnings and an improving balance sheet, analysts at national brokerage firm Motilal Oswal said. “The SBI appears well positioned to report a sharp rise in profits, driven by moderation in credit costs, as the bank strengthened its balance sheet and increased its PCR to ~ 88%,” analysts at Motilal Oswal said in a note. . The State Bank of India is the country’s largest public lender. The SBI share price has climbed more than 13% since the end of December to date. The pinned target price of Rs 675 each implies an additional upside potential of 32%.

Improve the fundamentals

The lender has improved the quality of its assets in recent quarters. In the first quarter of last year, SBI’s gross NPA was 5.4%, compared to 4.9% in the last quarter. The bank reports continuous improvement in its results, aided by controlled provisions. “SBI has undoubtedly one of the best civil liability franchises (CASA mix: ~ 46%). This puts him in a better position to handle the pressure on returns. In addition, the low cost of deposits would continue to support margins to a large extent. We estimate the RoA / RoE for fiscal 23E at 0.8% / 15.1%, ”said Motilal Oswal.

State Bank of India subsidiaries such as SBI Mutual Funds, SBI Life Insurance, SBI Cards and Payment Services and SBI Cap have shown strong performances in recent years and account for almost 31% of the total valuation.

While Motilal Oswal sees a sharp rise of 32% for the SBI, analysts at Edelweiss are also bullish on the title. The brokerage firm picked State Bank of India as one of its top picks in banking ahead of quarterly results. The brokerage firm has a “buy” rating on the script with a target price of Rs 650 per share.

Overview of results

In the October-December quarter, SBI is expected to record 6.7% year-on-year loan growth to Rs 26.1 lakh crore and 9% year-on-year deposit growth, ICICI Direct said. The SBI brokerage firm’s GNPA ratio can drop to 4.68%, taking into account slippages normalized to Rs 6000-7000 crore. ICICI Direct expects SBI’s net profit to grow 50% year-on-year to Rs 6,919 crore. ICICI Direct has a “Buy” rating on SBI with a target price of Rs 640 per share.

JM Financial, on the other hand, has more robust earnings expectations from the State Bank of India. JM Financial expects lender to see 74.4% yoy growth in net profit to Rs 9,064 crore while loans are expected to grow 6.3% yoy and deposits to 8.8 %.

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