SBI’s stock gains over 6% despite Q4 loss

Seldom has a stock gained more than 6% in trade just a day after posting its biggest-ever quarterly loss. But on Wednesday, State Bank of India (SBI) shares managed to do just that. Despite posting a loss of a whopping Rs 7,718 crore on Tuesday due to higher slippages and provisions, SBI’s stock touched a high of Rs 269.70 in the early hours of trading the very next day. The stock closed at Rs 263.20, over 3.5% higher than the previous day, which had also seen SBI’s shares gaining on the back of positive management commentary.

One of the main reasons why investors seemed to remain confident about SBI’s future is the management signalling the completion of the NPA recognition process. Brokerage reports that poured in through the day also highlighted the fact that going forward, the slippages and provisioning figures would only improve and SBI, the country’s largest lender, stood to benefit the most from the NPA resolution process coming to fruition.

In its note, IIFL said the firm upgraded its net profit estimate for financial year 2018-19 by 21%, accounting for a sharp cut in slippages and provisions for bad loans. “Resolutions in NCLT accounts, lower residual stressed assets and enhanced income recognition and provision write-backs through to FY21 should drive revenues and profits,” the note stated, adding that the firm held a ‘buy’ rating on the stock.

In a note titled ‘Pain Taken, Gain Likely’, HDFC Securities said with a breakthrough in one major IBC case (i.e., Bhushan Steel) and several others nearing resolution, SBI is set to be among the biggest beneficiaries. The note also highlighted that the bank’s pre-provisioning operating profit had seen steady sequential growth, owing to a 6% quarter-on-quarter uptick in loan growth, seasonal spike in fee income (over 69% sequentially) and controlled operating expenses (rise of just 10.45% QoQ and 3.45% YoY).

Jeffries also retained its ‘buy’ rating on the stock, adding that it estimates core profitability to see a cyclical improvement through the second-half of the current financial year. “Gross NPL (non performing loans) stood at 10.9% due to high slippage. However, most of it was from known stress pool and a telecom exposure. NPL recognition cycle has broadly peaked out,” the report said.

Stock broking firm Prabhudas Lilladher was of the view that the worst was over when it came to NPA recognition, emphasising that the bank’s stressed asset pool is now 1.3% of loans (down from 2.8% in Q3). “Some large recoveries from NCLT accounts will help improve asset quality but keep provisioning high based on ageing, leading to improving PCR (provision coverage ratio),” the report added.