SMAR Daily Industry News

Brokerages Maintain Buy Ratings on SBI Following Q2 Results

State Bank of India (SBI) has received positive outlooks from several major brokerages following its latest quarterly financial performance. The bank reported a 14% year-on-year increase in standalone profit, reaching Rs 23,038 crore, while its loan book expanded to surpass Rs 52 lakh crore. Operating profit for the quarter rose 7% to Rs 34,226 crore, and interest income grew 10% to Rs 1.32 lakh crore, outpacing the 8% growth in interest expenses.

Jefferies has maintained its Buy rating on the stock with a target price of Rs 1,320, suggesting a potential 34% upside. The firm highlighted the bank's strong asset quality, noting gross slippages at 0.5% of loans and a gross non-performing loan ratio of 1.4%. Jefferies raised its FY27-FY29 estimates by 1-2%, citing the bank's healthy return on equity and capital adequacy ratio of 13% as key factors supporting future growth.

Motilal Oswal also reiterated its Buy rating, setting a revised target price of Rs 1,225, which implies a 26% upside. The brokerage pointed to steady performance driven by net interest income growth and one-off gains from the sale of a stake in SBI Mutual Fund. Net interest margin (NIM) expanded by 8 basis points quarter-on-quarter, aided by the deployment of surplus FCNR(B) liquidity to retire high-cost liabilities. The bank has maintained its domestic NIM guidance of above 3% for FY27.

Emkay Global Financial Services provided the most optimistic outlook among the three, retaining a Buy rating with a target price of Rs 1,350, representing a 39% upside. Emkay attributed the NIM expansion to lower deposit costs and improved CASA balances. The brokerage noted that management expects further gains from the repricing of EBLR and MCLR-linked loans. However, Emkay identified potential risks, including a macroeconomic slowdown that could impact growth and asset quality, as well as the possibility of higher treasury losses.

Regarding the transition to the expected credit loss (ECL) framework, management anticipates a one-time net-of-tax impact of Rs 1,950 crore, to be adjusted through reserves. Emkay Global separately noted that management estimates the net-of-tax impact of the ECL framework at approximately Rs 19,500 crore. Additionally, the bank may face restructuring for agricultural loans totaling about Rs 10,000 crore across three drought-affected states.

For investors, these brokerage assessments highlight a consensus on SBI's operational resilience and growth potential, though the transition to new credit loss frameworks and broader macroeconomic conditions remain variables to monitor closely as the bank navigates its upcoming fiscal years.

Why it matters

The alignment of major brokerages on SBI's growth trajectory suggests institutional confidence in the bank's asset quality and NIM management, despite upcoming regulatory accounting shifts.

FAQ

What is the projected upside for SBI shares according to Emkay Global?
Emkay Global Financial Services sees a 39% upside, with a target price of Rs 1,350 per share.

How did SBI's interest income and expenses perform during the quarter?
Interest income increased by 10% to Rs 1.32 lakh crore, while interest expenses grew at a slower pace of 8% to Rs 82,876 crore.

What are the potential risks to SBI's outlook identified by Emkay Global?
Key risks include a macroeconomic slowdown that could hurt growth and asset quality, as well as higher treasury losses.

What is the status of SBI's domestic NIM guidance?
The bank has reiterated its domestic net interest margin (NIM) guidance of above 3% for FY27.

Source: Economic Times Markets. See the original source for full details.