Brokerage bullish on this PSU bank stock, suggests buying for 41% upside potential

Stock market outlook

On July 4, 2022, shares of SBI closed at the current market price (CMP) of Rs. 473.45 per share, while it opened at Rs 466.85 per share. On August 23, 2021, the stock reached a 52-week low at Rs 401.25 per share, while the 52-week high it reached on February 07, 2022 at Rs 549 per share. The PE ratio of the stock is Rs 11.69, while the PB ratio is 1.32. EPS-TTM is Rs 40.52. The market capitalization of the stock is Rs 4,22,535 crore. It is a large cap stock.

CPM Target price Potential earnings
Rs.473.45 Rs.665 41.00%

Given the brokerage’s estimated target price of Rs. 665 per share, investors can expect potential gains of 41%, if the shares are raised to the CMP of Rs 473.45 per share.

Return

1 year 3 years 5 years
11.56% 28.87% 73.42%
Financial and operational performance

Financial and operational performance

The bank’s retail portfolio recorded strong growth, mainly driven by growth in home loans and xpress credit cards, which led to NII growth of 9% year-on-year to 1,207 billion rupees from 1,107 billion rupees in FY21. While non-interest income was supported by growth in commission income, it was dragged down by treasury income. Its other income stood at Rs 405 billion in FY22 compared to Rs 419 billion in FY21. business development. On a positive note, despite higher operating expenses, the bank’s cost-to-income ratio improved to 53.3% in FY22 from 53.6% in FY22. 21, alongside decent NII growth. PPOP rose to Rs 752 billion in FY22 from Rs 700 billion in FY21, registering a growth of 7.4% year-on-year. With strong collection and recovery efforts, improved asset quality driven by lower provisions during the year and growth in advances, the bank recorded healthy growth in PAT which rose to Rs 317 billion as of in FY22 against Rs 204 billion in FY21.

Asset quality

Asset quality

The bank continues to positively surprise on the asset quality front with a 12.4% year-on-year downslip to Rs 250 billion, a pound restructured at 1.1% and a significantly lower pound SMA of Rs 35, 4 billion, down 69% year on year from levels of Rs 115.2 billion. in FY21. Nothing unusual was observed in the behavior of the restructured book for FY22. FY21 levels of 4.98/1.5%. The bank has shown notable strength in continuously improving its G/NNPA since 2018 and its provision coverage ratio improved by 416 basis points from FY21 levels to 75.04%, which seems reasonable.

Balance sheet review

Balance sheet review

The bank’s capital adequacy ratio increased by 9 basis points from 13.7% in FY21 to 13.8% in FY22, and Tier 1 capital remained stable at 11.4%, representing a strong capital base against unforeseen risks and the stressed asset pool. In addition, its RWA to total assets increased by 10 basis points, from 49.6% in March 21 to 49.7% in March 22. ROA and ROE also continue their strong growth momentum , which stand at 0.67% and 13.9% respectively.

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Strengths and growth drivers

Strengths and growth drivers

Main competitive advantages

  1. Strong unsecured lending profile with over 90% to salaried government employees.
  2. Strong presence in the Home and Auto Loan market.
  3. High quality wholesale loan portfolio with over 75% of corporate loan portfolio rated A and above and approximately 45% of corporate loans to government enterprises and PSUs.

Growth engines

  1. Continued focus on digital-driven growth.
  2. Continued focus on Retail Finance Book.
  3. Strong balance sheet position to support growth.
The brokerage suggests buying for a target price of Rs 665 per share

The brokerage suggests buying for a target price of Rs 665 per share

The bank’s asset quality performance has been consistently better than that which has led to the normalization of the cost of credit. “We believe SBIN’s unsecured lending profile is strong with over 90% for salaried government employees. In addition, retail book traction at 15% remains healthy, supported by home loans and debit cards. credit Xpress, and we expect further improvement in the coming quarters.Currently, the bank’s market share in home loans and auto loans is over 20%.Among PSU banks, SBI, with its healthy PCR, its strong capitalization, strong liability deductible and improving asset quality outlook, remains the best player in the gradual recovery of the Indian economy.We believe normalizing credit costs and improving growth prospects should lead to double-digit ROEs of around 14-15% over FY23-24E. 3x FY24E and subsidiaries at Rs 185), implying a 45% rise in CMP,” Axis Securities said.

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