CLSA sees 61% upside in SBI post strong Q4 performance; should you invest?

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Shares of State Bank of India (SBI) settled 4.3% higher at Rs 401.10 apiece on BSE on Friday, after the lender reported a stellar performance for the quarter ended March 2021.

SBI on May 21 reported a profit after tax of Rs 6,451 in Q4FY21, which is 80.15% higher than Rs 3,581 crore posted in the same quarter last year. Net Interest Income (NII) rose by 18.89% to Rs 27,067 crore in Q4FY21 compared to Rs 22,767 crore in Q4FY20.

Net Interest Margins (NIM) for the whole bank in the March quarter came at 2.90% rising 16 basis points on sequentially.

Asset quality improved significantly with the gross non-performing assets (NPA) as a percentage of gross advances falling 46 basis points (bps) sequentially to 4.98% in the quarter ended March 2021. The net NPA in the same period declined 31 bps QoQ to 1.50%.

Provisions and contingencies came at Rs 13,249 crore in January-March 2021 quarter, declined 10.98% year-on-year.

The lender reportedly received a windfall of nearly Rs 4,000 crore as part of dues owed by bankrupt steelmaker Bhushan Power and Steel.

The central board of the bank has also declared a dividend of Rs 4 per equity share for the financial year ended March 31. The date of payment of the dividend has been fixed for June 18, 2021.

Here is what brokerage have to say about its Q4 performance

CLSA | Target price: Rs 650 | Upside: 61%

The global brokerage firm believes that SBI is best in class yet available at a PSU price. With Q4FY21 being beat the visibility of 15% Return On Equity is high now. Big surprise with the slippages of just 1.2% YoY in a pandemic year, with retail slippages coming in at <0.5% of loans. Current valuation of 0.7x Mar’23 book are undemanding and raise PAT (Profit After Tax) estimate by 1.1% & 3% for FY22 & FY23 respectively.

Morgan Stanley | Target price: Rs 600 | Upside: 49%

FY21 asset quality was strong despite COVID, given good retail underwriting and corporate non performing loan cycle turning. Core Pre-provision operating profit (PPOP) did well and will improve further – driving Return on Assets (RoA) of 0.8% in FY22e and 0.9% in FY23e. Valuations at current looks very attractive.

Motilal Oswal | Target price: Rs 530 | Upside: 31%

SBI reported a strong 4QFY21 in a challenging environment. Deposit growth stood strong, led by healthy CASA trends, while loan growth is likely to recover gradually over FY22-23E. Asset quality outlook remains particularly encouraging, with record low slippages and controlled restructuring book. Slippages in FY21 stood at 1.2% v/s 2.3% during FY20. Retail asset quality was impeccable for SBI, with slippages significantly lower v/s peers. The management has prudently improved PCR to ~71%. It holds unutilized Covid provisions of ~Rs 6,300 crore.

JM Financial | Target price: Rs 525 | Upside: 30%

Management reiterated its target of delivering an RoE of 15% in the medium term aided by increasing credit growth (FY22E guidance of 10%), moderation in credit costs driven by asset quality improvement and improving operational performance (aspirational cost-to-income of <50%). SBI’s asset quality perception had kept its valuation multiples suppressed despite core fundamentals consistently outperforming expectations, strong FY21 performance on the asset quality front should support valuation multiples to rerate higher.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)