State Bank of India (SBI) is witnessing an optimistic sentiment from analysts, despite its stock's recent underperformance. They attribute their bullish outlook to SBI's robust balance sheet, improving asset quality, controlled credit costs, and impressive loan growth. The bank has reported a 3.4% quarter-on-quarter (QoQ) and 13% year-on-year (YoY) loan growth, along with a strong deposit growth of 3.5% QoQ and 12% YoY. The total deposits have reached ₹47 trillion while the loan book has hit ₹33.5 trillion.
In addition to these promising figures, SBI posted a net profit of ₹14,330 crore (INR100 crore = approx. USD12 million) in Q2, marking a YoY growth of 8%. Despite concerns over Net Interest Margins (NIM) moderation, the bank expects future compression to be limited to just 5 basis points following a moderate decline of 12 basis points in domestic NIMs.
Brokerages including CLSA, Kotak Institutional Equities, Motilal Oswal, and Nuvama have maintained a "Buy" rating for SBI's stock. Their target prices for the bank's shares range from ₹700 to ₹725. Kotak values the bank at 1.3X (adjusted) book and 8X FY2025E EPS while Motilal Oswal forecasts Return on Assets (RoA) and Return on Equity (RoE) of 1.1% and 18.3% for FY25, respectively.
Analysts suggest that effective management of critical factors such as credit costs and preservation of NIM could potentially lead to a re-rating of SBI's currently underperforming stock. These elements are seen as pivotal for an improved stock outlook.
InvestingPro Insights
According to InvestingPro, SBI has shown signs of revenue acceleration and consistent increase in earnings per share, which aligns with the optimistic sentiment from analysts. Despite concerns over earnings quality, with free cash flow trailing net income, SBI has managed to raise its dividend for three consecutive years, indicating a high shareholder yield.
InvestingPro's data reflects a market cap of $102.47 million and a negative P/E ratio of -87.59. The bank has managed to achieve revenue growth of 5.67% in the last twelve months as of Q2 2023, with gross profit margin standing at 100%. Despite its low price volatility, the stock has returned -0.95% year-to-date as of 2023, but has shown a positive return of 3.77% over the past year.
For those interested in further insights, InvestingPro offers an additional 15 tips on SBI, including detailed analysis on aspects such as gross profit margins, sales forecasts, and valuation implications. These insights can be instrumental in making informed investment decisions.
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