Investors were trading on a cautious note in the largest lender State Bank of India (SBI) share, despite the bank posting a better than expected December 2018 (Q3FY19) quarter. At around 1107 hours, SBI was trading at Rs 282.20 per piece down by Rs 2.10 or 0.74% on Sensex. The stock has already tumbled by over 1% after it clocked an intraday low of Rs 278 per piece. If you are an SBI investor, then you should note that the bank is well placed and is an appealing stock. To your notice, SBI is the largest stressed asset holder in the entire banking system. However, this trend has reversed the bank’s gross NPA dropped with huge numbers in Q3FY19 showing the signs that NPA recognition process has finally completed. And, with the help of RBI and government insolvency resolution and other medium, the bank is set to remove the debt chunk from its balance sheet. This is enough reason for investing in SBI, but the bank is much more compelling and a money making stock for a various reasons. 

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During Q3FY19, SBI outshined by reversing its losses into profit. The bank bagged net profit of Rs Rs  3,955 crore in Q3FY19 as against net loss of Rs 2,416 crorein corresponding period last year. Sequential growth is 318.56%. Net Interest Income registered a healthy growth of 21.42% YoY from Rs.18,688 crore in Q3FY18 to Rs. 22,691 crore in Q3FY19. 

Higher credit growth, better spreads and lower slippages led to Domestic Net Interest Margins increasing to 2.97% during Q3FY19.

One of the major highlights of SBI's Q3FY19 was massive decline in stressed assets which restores faith of investors, customers and experts in the bank. Gross NPAs of the Bank declined from Rs 2,05,864 crore as on September 18 to Rs 1,87,765 crore as on December 18, whereas Net NPAs declined from Rs 94,81 crore to Rs 80,944 crore during the same period.

Here’s why SBI should be bought on exchanges.

Management expects recovery of Rs 340 billion over the next 1-2 quarters from eight large accounts, which will result in a ~171bp and 95bp fall in GNPA and NNPA levels, respectively, from current levels.

Analysts at Elara Capital said, “On the asset quality front, the bank’s performance was encouraging, with fresh slippages at a 12-quarter low while credit cost stood at ~3.0% even with negative net slippages, resulting in a rise in provision coverage. We assume credit cost at 159bp in FY20E while GNPA and NNPA is likely to decline 171bp and 95bp, respectively, from current levels until FY20E-end.”

These analysts added, “MTM gains aided credit cost; coverage ratio improves 871bp YoY Negative net slippages, interest income accrual from NPA recovery, better loan pricing environment and stable CASA composition led to robust SBI (SBIN IN) core performance. “

"Stability in low-cost deposit franchise, uptick in retail credit, improvement in margin on better loan pricing environment and low net slippages would guide return ratios on a higher trajectory. Resolution of IBC cases will provide fillip in near term and would add to return ratios. Hence, we expect a ROE of 11% in FY20E and 15% in FY21E.Stability in low-cost deposit franchise, uptick in retail credit, improvement in margin on better loan pricing environment and low net slippages would guide return ratios on a higher trajectory. Resolution of IBC cases will provide fillip in near term and would add to return ratios. Hence, we expect a ROE of 11% in FY20E and 15% in FY21E," the experts added.

Meantime, Yes Securities said, “Asset quality is getting clearer with SMA 1 & 2 (amongst Rs 50 million loans) outstanding at a marginal 1% of advances. Management guidance on slippages and credit cost for FY20 is consistent with this. Being much better placed than most other PSBs in terms of capital, SBI is looking at further market penetration along with improved margins.”

"Further acceleration in loan growth, expansion in margins and moderation in the credit cost would cause the bank’s earnings to catapult 5x over FY19-21. The RoA and RoE will improve to 0.7%and 12% respectively by FY21. Adjusting for the valuation of majority stake in subsidiaries, the bank is trading at an alluring valuation of 0.9xFY21 P/ABV. Along with ICICI Bank, SBI is one of our preferred picks in the sector," it added.

Placing a price target with Buy ratings, Elara said, “We reiterate our Accumulate rating on the stock with a revised TP at INR 332 from INR 323 and determine SBI (standalone banking entity) value at INR 257 from INR 250 at 1.3x (unchanged) one-year forward P/ABV and INR 75 from INR 73 towards key subsidiaries.”

In Yes Securities view, SBI is set to achieve the target price of Rs 380. Hence, a buy rating is given. 

Taking into consideration the price target, SBI is set to give between 20% to 35% return ahead to its investors. Hence, what are we waiting for, let’s have an appetite for SBI shares.