SBI shares rise 2% post Q3; what should investors do now?

Shares of State Bank of India (SBI) climbed over 2% in intraday trade on Monday after the country’s largest lender reported robust earnings for the December quarter, which topped D-Street estimates. The stock price also got a lift as most brokerages maintained “Buy” rating on the SBI, citing healthy performance on the operating front and strong credit growth.

Boosted by strong Q3 numbers, SBI share price opened 1.7% higher at ₹554 against the previous closing price of ₹544.45 on the BSE. In the early trade, the banking heavyweight gained as much as 2.5% to ₹558.25, while the market capitalisation climbed to ₹4.88 lakh crore. The stock touched a 52-week high of ₹629.65 on December 15, 2022, while it hit a 52-week low of ₹425 on March 8, 2022. SBI has underperformed the BSE Sensex and Bankex index in terms of returns in the last one year. The stock has risen 1% in a week; while it has fallen 9% in the past month. In the past six months, the counter gained 5%, while it added 2.5% in a year.

SBI on Friday reported its highest-ever quarterly net profit at ₹14,205 crore in Q3 FY23, up 68.47% on a year-on-year basis from ₹8,431.9 crore in the December quarter of 2021. The robust growth in quarterly profit was attributed to strong growth in its core income and a reduction in provisions.

The public sector lender’s operating profit surged 36.16% YoY to ₹25,219 crore, while the net interest income (NII) increased 24.05% YoY to ₹38,069 crore from ₹30,687 crore. The interest income for the quarter stood at ₹86,616 crore, up 24.31% on yearly basis.

On the asset quality front, gross non-performing assets (NPAs) dipped 136 bps YoY to 3.14% of its total advances in Q3 FY23, from 4.5% in the year-ago period. The net NPA also fell 57 bps YoY to 0.77% as compared to 1.34% in the year-ago quarter. The total provisions dipped 17% to ₹5,761 crore, while provisions against NPAs nearly halved to ₹1,586.47 crore. Its provision coverage ratio as of Q3 FY23 stood at 76.12%, up 490 bps YoY.

Brokerages view on SBI Q3 results

Most of the brokerages have assigned “Buy” ratings to SBI shares after its December quarter earnings, with a potential upside of 28% from current market price.

Foreign brokerage house Jefferies has maintained the 'buy' rating on the stock with a target at ₹760 per share, an upside of 28% from Friday’s closing price. The research firm in its report said that SBI’s Q3 profit beat estimates on stronger NII and MTM gains. On exposure to Adani group, the report mentioned that it is slightly ahead of PSU banks, which are mostly operating/cash flow making entities and no promoter pledge.

Analysts at JM Financial Institutional Securities have also maintained Buy with a price target of ₹675, citing another solid quarter with strong core Pre-provision operating profit (PPOP) growth, continued loan growth momentum, and robust asset quality. “With improving operating environment, ample contingent buffer and strong growth outlook, we believe the annual ROE target of 15% is achievable in FY23-24E. Therefore, we recommend BUY with a target price of ₹663,” it said. It said that fears regarding a corporate group exposure (Adani group) are overblown, given exposure is limited to 0.9% of loans and the recent correction is an opportunity to enter the name.

Prabhudas Lilladher has also retained the ‘Buy’ tag on the stock with a target price of ₹730, citing higher than expected quarterly numbers. The brokerage said that Adani group exposure is 0.88% of total loans. Till date, there have been no repayment issues, as loans are backed with cash generating assets and no finance is extended against promoter’s equity.

LKP Securities has also recommended Buy with target price of ₹663, saying that the bank has delivered a strong result on operating and assets quality front. “With improving operating environment, ample contingent buffer and strong growth outlook, we believe the annual ROE target of 15% is achievable in FY23-24E. Therefore, we recommend BUY with a target price of ₹663,” it said in a note.