For years, comments such as the“worst is over” by past chairmen of the state-owned lender have drawn scepticism and a chuckle from investors as the statement turned out to be a prescient harbinger of another crisis around the corner.
However, this time around, it is the market that feels that the worst may be over for the lender’s balance sheet, as the stock soared 15 per cent — its highest intraday gain since March 2020 — to a record high of Rs 408.35.
Brokerage Macquarie Capital Securities said the “elephant has started dancing” as it now has “increased confidence in SBI’s asset quality and balance sheet”, and, hence, believes the bank is on track to hit its target 1 per cent return on assets as credit costs normalise.
The foreign brokerage firm raised its price target for the stock by 25 per cent to Rs 450 and retained its ‘outperform’ rating. The brokerage also raised its earnings per share forecast for the lender by 13 per cent and 14 per cent for financial years 2021-22 and 2022-23, respectively.
The state-owned lender reported a 7 per cent year-on-year decline in net profit for the December quarter, but beat analysts’ estimate. The bank’s asset quality improved sequentially, even accounting for the standstill on bad loan recognition given by the Supreme Court.
However, it was the lender’s outlook on slippages being retained at Rs. 60,000 crore for 2020-21 and double-digit credit growth that impressed analysts the most. Brokerage firm BOB Capital Markets, which raised its price target on the stock by 83 per cent, raised its EPS estimate for the bank by 60 per cent for 2022-23 to factor in the lender’s outlook.
CLSA Asia-Pacific Markets retained its ‘buy’ rating on the stock and upgraded its price target by 45 per cent to Rs. 560. “We believe SBI still remains a deep value opportunity and current rerating should continue,” the brokerage said in a note.
CLSA believes that a re-rating in the state-owned bank’s stock will be helped by a benign corporate credit cycle, an increase in loan and deposit market share over the past decade, and improvement in return on assets.
