Brokerages remain optimistic despite SBI missing Q3 expectations because of a one-time loss: Do you need to purchase more?

Brokerages remain optimistic despite SBI missing Q3 expectations because of a one-time loss: Do you need to purchase more?

Motilal Oswal, Jefferies, and Nomura are among the brokerages that have recommended a "buy" on SBI shares. Bernstein and JPMorgan have urged "overweight" on the counter.

For the quarter ended in December 2023, SBI had a 35.5% year-over-year decrease in standalone net profit of Rs 9,163 crore.

Due to a high pay and pension expense, State Bank of India's (SBI) third-quarter net profit fell short of Street expectations. But reduced loan costs kept the state-run lender's total profitability robust despite lackluster core operational performance, drawing positive comments from brokerages. In spite of limited liquidity, analysts think SBI remains in a strong position.

The bank's net profit for the quarter that ended in December 2023 dropped 35% year over year to Rs 9,163 crore due to pension obligations of Rs 7,100 crore. The biggest bank in the nation's net interest income (NII) was Rs 39,815 crore, Rs 40,304 crore less than projected.

Analysts at Noumra said that SBI showed robust loan growth in Q3FY24, even though NIM fell short of forecasts due to weaker NIM and large one-time charges.

"The bank is well positioned in the current tight liquidity environment," the statement said, noting that SBI's operational expenditures were properly handled apart from the impact of increased pay revision provisions.

The firm has revised its FY24 EPS forecast lower by 13%, but it has maintained a "buy" recommendation on the company with a target price of Rs 755 per share.

With net slippage of only 0.4% during the reviewed quarter, SBI's asset quality remained high.

JPMorgan observed that SBI's credit costs were lower, with account level upgrades offsetting core loan losses, even though core NIM declined sequentially by 12 bps as a result of deposit revaluation.

In the near future, the brokerage expects another increase in pay revisions in Q4 and lower compensation expenses in FY25, which will boost operational leverage. The company has a 'Overweight' call with a Rs 725 share target price.

With a target price of Rs 810 per share, Jefferies has a 'buy' recommendation on SBI as well. According to the brokerage, public sector lenders' NIMs were well-managed, which helped the NII expand. At the same time, loan growth improved to 14%, mostly due to corporate loans. It said that there are indications of normalization in the weak retail sector.

"Asset quality is doing better than expected, notwithstanding reservations. There is a small buffer with a CET-1 ratio of 10.4%, but strong return on equity (ROE) and mark-to-margin (MTM) earnings provide support. But according to a study from Jefferies, "There remains room for capital raising in the near term."

It should be noted that the CET-1 ratio assesses a bank's resilience to a financial crisis by comparing its capital to its risk-weighted assets. Additionally, SBI has received a "outperform" rating from global brokerage company Bernstein, with a target price of Rs 710 per share.

Motilal Oswal claims that SBI uses a number of levers, including the cash deposit (CD) ratio and the marginal cost of funds-based lending rate (MCLR), to maintain consistent profitability.

A 'buy' recommendation with an unchanged target price of Rs 800 was maintained by the brokerage, which noted that SBI's business growth is still robust and that there are indications of recovery in the corporate category.

According to JM Financial Services analysts, future solid profitability should result from planned growth delivery, maintaining NIM close to present levels, and controlling asset quality metrics that help limit lending costs.

The firm maintained a "buy" recommendation on the company and said, "We value the core banking business at 1.2x FY26 P/BV thus our SoTP-based price recommendation comes to Rs 800 per share."

SBI shares were trading on the NSE at Rs 651.70 a share at 9:43 in the morning. Over the course of the last year, the stock has risen over 18%, which is less than the 23% increase made by the benchmark Nifty 50.