Buy State Bank of India Ltd For Target Rs. 650 - ICICI Direct
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Strong performance enthuses…
About the stock: SBI is a public sector bank and also the largest bank in India with a balance sheet size of ~ | 48 lakh crore
Strong liability franchisee with trend setting abilities in terms of rates
Best operating metrics in the PSU banking space
Q3FY22 Results: Healthy performance on the asset quality front and growth.
GNPA down 40 bps QoQ to 4.5%, restructured book at 1.2% of loans
NII up 6.5% YoY, NIM down 9 bps QoQ to 3.2%, C/I ratio at 52.9%
Provisions at | 6974 crore, PAT up 62.3% YoY at | 8431 crore
Gross advances up 8.5% YoY (higher than estimates) and deposits up 8.8% YoY, CASA at 45.7%
What should investors do? SBI’s share price has surged over 2x in the past five years. We believe overall strength in liability franchisee, >9% guidance on growth and improving return ratios with RoE touching 12-13% should be positives for SBI.
We retain our BUY rating on the stock
Target Price and Valuation: We value the bank at ~1.22x FY24E ABV and subsidiaries at ~| 192 per share to arrive at a revised target price of | 650.
Key triggers for future price performance:
Strong performance on asset quality front is a positive
Healthy pipeline to aid business growth and overall performance
Healthy provisions worth around 1.1% provide comfort on earnings shock
Improving RoE trajectory to aid improvement in valuations
Alternate Stock Idea: Besides SBI, in our coverage we also like Bank of Baroda
Bank of Baroda is among leading PSU banks with a global exposure and relatively better operating metrics among PSBs
BUY with a target price of | 120
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