SBI clocks new high on Dalal Street, shares up 7.50%: Why you can still buy this stock

While benchmark indexes Sensex and Nifty were soaring on Monday, it was the performance of State Bank of India (SBI) shares which was a treat to watch. Investors had heavy buying sentiment in SBI, as the bank touched an all-time high of Rs 342.90 in just few minutes of Monday’s opening session. With this stellar upswing, SBI shares have risen by nearly 40% in a year, making many investors rich. On the same day last year, the SBI shares were trading near Rs 245-levels. However, at around 1039 hours, SBI share price was trading at Rs 340.35 per piece up by Rs 21.40 or 6.60%. Experts are very optimistic on this lender. In fact, one can still continue to buy SBI shares, as it will rise further by 24%. 

On SBI post Q4FY19 result, rating agency CLSA said, “SBI’s 4QFY19 profit of Rs8.4bn was below estimates due to high provisions & a tad lower OP. But its core asset quality trend was better with the delinquency ratio at 1.6% & its coverage ratio improving to 62%. Hence, we expect the bank’s credit costs to halve from 2.6% in FY19 to 1.2% in FY20 and this will be key to a rebound in its earnings. The bank is also gaining share in loans aided by low funding costs and competitive rates, but Casa growth of 8% YoY needs to improve to maintain its lead. Earnings upgrades for FY20-21 are high, but off a low ROA-base and have upside risk from the resolution of select NPL cases (with NCLT). SBI remains our top-pick among PSU banks with a newtarget price of Rs390 (previously Rs380).”

On the other hand, Rajiv Mehta, Research Analysts along with Amar Ambani, Head of Research at Yes Securities for SBI’s FY20 said, “With every passing quarter, SBI is getting more sanguine about its growth and profitability prospects. The deepening NBFC/HFC crises implies potential growth opportunities and asset quality challenges for banks in general. For SBI, the benefit from market share gains could easily outweigh any potential stress in its NBFC/HFC portfolio, which we believe would be quite manageable. The bank expects to further improve on the current loan growth with adequate capital in hand and would execute its equity raising plan to capture much larger market share gain opportunity. Management expects domestic NIM to move towards 3.25% from 3.05% at present driven by a reasonably strong pricing environment and robust liability franchise.”

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Further in Yes Securities views, slippages are expected to remain moderate with legacy stress recognized and fresh NPL accruals remaining low underpinned by tightened underwriting and monitoring, shift towards cash flow based lending and shift towards better rated assets. Credit cost is expected to be substantially lower in FY20 with requirement of minimal incremental provisioning on legacy stress and resolutions of NPLs leading to substantial provisions write-backs. Thus, the bank expects RoA in FY20 to be in the range of 0.75% - 1.05% capturing the worst and best scenario.

Also, the subsidiaries in life insurance, general insurance, asset management and cards continue to accrete value. Adding Yes Securities said, “Adjusted for the value residing in them as per the holding, the stand-alone bank trades at an undemanding valuation of 6x P.E and <1x P/ABV on our FY21 estimates. The valuation gap with Axis and ICICI Bank has significantly widened over the past 6-8 months, and thus SBI offers the best risk reward amongst the corporate lenders. SBI now is our top pick in the sector with target price of Rs 425.”