SBI shares up 1% post Q2; should you buy, hold or sell?

Shares of State Bank of India (SBI) climbed over 1% on Monday after the country’s largest lender released its September quarter earnings report. The most valued PSU banking stock has risen in six of the last seven sessions of this month, with the index heavyweight gaining 4% during this period.

Early today, SBI shares opened marginally higher at ₹847 after ending 1.87% lower at ₹843.25 on Friday on the BSE. Extending opening gains, the counter gained as much as 1.2% to ₹853.65, while the market capitalisation rose to ₹7.58 lakh crore.

The share price of SBI touched its 52-week high of ₹912.10 on June 3, 2024, and a 52-week low of ₹555.25 on November 22, 2023. In the calendar year 2024, the banking major has gained nearly 33%, while it added more than 46% in the past one year. The counter has risen 5% in six month as investors booked profit at higher levels, while it climbed over 6% in a month.

During the market hours on Friday, SBI released its Q2 numbers, posting double-digit growth in its profit. The board of the PSU bank also approved a proposal for raising long term bonds up ₹20,000 crore through a public issue or private placement, during the current fiscal.

The chairman Challa Sreenivasulu Setty-led bank posted a 28% rise in its standalone net profit at ₹18,331 crore in Q2 FY25 as compared to ₹14,330 crore in the year-ago period. The net interest income (NII) jumped by 5.37% year-over-year to ₹41,620 crore, from ₹39,500 crore in the same period last year. 

On the asset quality front, SBI saw its gross non-performing asset (NPA) improving to 2.13% as on September 30, 2024, as against 2.21% in the previous quarter and 2.55% in the year ago period. In a similar trend, net NPA ratio dropped to 0.53% against 0.57% in Q1 FY25 and 0.64% as on September 30, 2023.

Should you buy, hold or sell SBI shares post Q2?

Brokerages remain bullish on SBI with ‘Buy’ ratings, expecting potential upside of up to 25% from the current level.

Domestic brokerage AXIS Securities has maintained a ‘Buy’ call on SBI with a target price of ₹1,040 per share, saying that the country’s largest commercial lender is well poised to deliver a strong earnings growth of 12% compound annual growth rate (CAGR) over FY24-27E alongside maintaining Return on assets (ROA) of 1-1.1%. This will be driven by strong growth while maintaining a comfortable loan-to-deposit ratio (LDR); focused efforts to improve fee income profile; contained opex ratios; and steady credit costs and strong asset quality.

Nuvama has also retained ‘BUY’ with unchanged price target of ₹1,026 apiece, citing that SBI’s core earnings were in line with expectation. “The bank maintained superior asset quality with lagged slippage decreasing to 0.6% from 1.1% QoQ and credit remaining low at 38bp. While domestic deposit growth lags domestic loan growth, domestic LDR remains low at 68%.” The brokerage in its report says that the management is confident of 14–16% loan growth (among the highest in the sector) for FY25E, a rebound in Xpress credit, double digit deposit growth, stable NIM and RoA of at least 1%. “Even if the policy rate is cut, with the recent MCLR hike of 30bp, the impact on NIM shall be marginal,” it added.

ICICI Securities has also maintained ‘BUY’, with unchanged price target of ₹1,000, saying that SBI has strong chances of gaining credit market share on improving credit delivery, strong funding franchise, low LDR and idiosyncratic issues at the second largest lender. “Amidst rising concerns on MFI/unsecured asset quality, SBI appears well-placed with negligible exposure to MFI, no exposure to credit cards and strong track record on unsecured PL (GNPA consistently ≤1%). We estimate the bank to deliver 100/90bps RoA and 18/16% RoE for FY25/26E.”

YES Securities has also retained ‘Buy’ rating on SBI with a revised price target of ₹1,025. “We value the bank at 1.3x FY26 P/BV for an FY25E/26E RoE profile of 15.8/15.9/16.6%. We assign a value of ₹278 per share to the subs., on SOTP.”

JM Financial has given a target Price of ₹1,050 with a ‘BUY’ rating. “SBI’s core fundamentals continue to be stable - delivery on the growth and asset quality should drive further re-rating of the stock. With room to increase CD ratio (unlike private peers), steady NIMs and range-bound opex and credit costs, we expect SBIN to outperform peer banks.” 

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