Can SBI shares rally?
State Bank of India or SBI is the largest bank in India by asset size and several branches. The bank – majority owned by the government – boasts a balance sheet of over Rs. 50 lakh crore. It has a customer base of about Rs. 45 crore – a third of the total population of India.The lender has a healthy retail portfolio and the best-operating metrics among PSU banks.
Its strong subsidiaries, including SBI Life Insurance, SBI Capital Markets, SBI Cards & Payments, Yes Bank, and SBI Mutual Fund, add value to the bank.After years of sluggishness when the SBI share price suffered due to inefficiencies in operations, the SBI has managed to turn over a new leaf. Thanks to its credit and deposit growth rate comparable to private players and size, its shares are now in demand.
As of October 2022, SBI share prices have zoomed 14% in the last year. In the current calendar year, it has delivered a return of 21%. In the previous five years, it has returned 75% to shareholders.However, many believe this may be the beginning. As of September 2022 end, an overwhelming 96% of analysts tracking SBI bank share price had a ‘buy’ call, citing high credit growth and relatively cheaper valuations.
Analysts at ICICIdirect believe the overall strength in the lending franchise, liability growth guidance of 12 to 14 per cent year on year (YoY), and a well-provisioned book remains positive for SBI share. Moreover, they added that improving return ratios with return on equity (RoE) at around 12% and return on assets (RoA) at 0.7-0.8% offer long-term visibility to the stock.
In its June quarter earnings, the lender reported credit growth at around 15% YoY, mainly thanks to a big jump in foreign office advances. Deposits for the bank were relatively lower at about9% when fixed deposits were not very attractive.Analysts say that the bank’s focus on the calibrated approach to growth, balance sheet strengthening, a strong liability profile, and healthy capitalisation makes it well placed to accrue earnings growth ahead.
SBI has also done a commendable job of reducing its bad loans, which has also lifted its profile compared to peers. Its gross non-performing assets (NPA) at 3.9% and net NPA at a per cent coupled with healthy provision coverage of around 75 per cent provides comfort on earnings trajectory.ICICIdirect expects earnings to grow at about11% compounded annual growth rate (CAGR) during FY22-24, with an improvement in RoE at around 12% in FY24.
The broker remains positive on future growth prospects and unlocks subsidiaries’ value to aid valuations.ICICIdirect has a ‘buy’ rating on SBI with an August 2023 target price of Rs. 673. This translates into a potential upside of 19% from hereon.
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