State Bank of India shares jump 11% as Street lauds Q3 performance

Shares of State Bank of India (SBI) rose 11 per cent, the highest since March 13 last year, after analysts raised price targets following a better than expected showing in the third quarter ended December (3QFY21).

The stock ended at a new lifetime high of Rs 393 after soaring to Rs 408 in intra-day trade.

The state-owned lender for the first time saw its market cap cross Rs 3.5 trillion.

“SBI’s 3QFY21 asset quality performance was very strong, as seen in its much lower slippages, fewer restructured assets, stable margins, and improving return on assets,” said a note by Macquarie titled “The elephant has started dancing”.

The brokerage raised its 12-month price target for the stock to Rs 450, raising earnings forecasts and assigning a higher trading multiple.

“We increase EPS (earnings per share) by 77 per cent, 13 per cent and 14 per cent for FY21E, FY22E and FY23E driven by sharply falling credit costs.”

CLSA increased the price target to Rs 560 per share from Rs 385 earlier.

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In a note titled “Breaking all barriers”, it said, “SBI’s retail asset quality has been impeccable (<50bps credit costs) over the last decade and with the end of the corporate credit cycle, SBI’s asset quality is finally delivering better asset quality outcomes vs even private banks. We revise up our earnings by 15-26 per cent and now expect ROEs (return on equity) of 14 per cent by FY23. SBI has been a consistent market-share gainer over the last decade and now with a dual benign credit cycle from FY22, we now expect SBI to rerate materially beyond 1x book.”

Shares of SBI have nearly doubled in the past three months amid strong buying momentum in banking stocks.

The Street was buoyed on Friday by SBI’s incremental bad loans in 3QFY21 coming in below expectations of not only analysts but also the management’s guidance. Despite Covid-related stress, the slippages for the quarter and the nine months of FY21 were the lowest in the bank’s history.

“Incremental stress for 9MFY21 at 2 per cent is much lower than our expectation of 3 per cent and management guidance of 2.5 per cent. It is also lower than 2.9 per cent for Axis Bank, 2.5 per cent for ICICI and 2.2 per cent for HDFC Bank. So the cheapest stock amongst the large cap banks has delivered the best outcome on asset quality,” said a note by Elara Capital.

The brokerage revised upwards its price target from Rs 335 to Rs 520 per share.

“We increase our target price to Rs 520 based on 1.2 times price-to-book value for FY22E and Rs 165 for subsidiaries. We expect SBI’s re-rating to continue driven by declining credit cost, market share gains in retail loans and deposits, and a supportive macro post budget. We do not see any asset quality shocks for SBI because the corporate cycle is behind us and SBI’s retail loans are to government employees where delinquencies are lower,” it said.