SBI m-cap crosses ₹5 lakh cr as stock surges; what should investors do?

State Bank of India (SBI), the country’s largest commercial lender, has become the newest member to join the ₹5 lakh crore market capitalisation (m-cap) club. SBI is the third lender to achieve this feat after HDFC Bank and ICICI Bank, thanks to a sustained rally in its share price for the last five sessions. On Wednesday, the PSU bank’s share price gained as much as 2.96% to touch a new life-time high of ₹574.75 on the BSE, as compared to 1,154 points fall in the BSE benchmark Sensex to 59,417 levels in intraday trade. During the session, the SBI market cap climbed to ₹5.12 lakh crore, which is the seventh highest among the listed companies on the BSE. 

Earlier today, shares of SBI opened lower at ₹548.30, against the previous closing price of ₹558.25 on the BSE, but soon pared losses to hit a record high of ₹574.75, in an otherwise weak broader market. Finally, the stock settled 2.39% higher at ₹571.60, while m-cap rose to ₹5.10 lakh crore. There was a surge in volume trade as 13.06 lakh shares worth ₹74 crore changed hands over the counter on the BSE, as compared to two-week average volume of 5.79 lakh stocks.

SBI share price has surged 35% in the past six months, rebounding from its 52-week low of ₹425 touched on March 8, 2022, to ₹574.75 intraday today. The largcap stock has delivered 32% returns in the past one year, while it rose over 21% on a year-to-date (YTD) basis. In the past one month, the banking major climbed nearly 9% and it added 6.5% in a week.

According to brokerages, the continued ‘uptrend’ in SBI shares is driven by credit growth and gradual improvement in margin.

Analysts at JM Financial have maintained a ‘Buy’ rating on SBI, with a target price of ₹660, indicating a potential upside of 15% from the current market price.” “We see continued outperformance given that it is a key beneficiary of the uptick in systemic credit growth. SBI has protected its asset/liability market share over the last 5 years and with increasing signs of stronger corporate credit demand emerging, we see SBI as one of the best-placed banks to ride the upturn,” the brokerage said in its report.

Another brokerage Prabhudas Lilladher said SBIN best estimates are driven by stronger PPOP (Pre-Provision Operating Profit), higher other income, and recoveries exceeding slippages. “Balance sheet is stronger than ever with a high Provisioning Coverage Ratio (PCR) at 75%, minimal stress and adequate coverage on OTR pool. Bank guided for credit growth of 12% YoY in FY23E although, NIM would keenly watched,” says Vikram Kasat, Head Advisory, Prabhudas Lilladher.

He further adds that the bank’s loan growth momentum remains strong, margins are expected to improve hereon, and asset quality remains benign plus digital initiatives are gaining strong traction.

“We raise FY23/24E by an average ~6%. ROE could scale up to 15% in FY24E and maintain Buy (TP Rs 600, based on SOTP, core 1.4x P/ABV),” Kasat says.

ICICI Direct in its recent report said that SBI is likely to continue its recent outperformance as it has registered a breakout above a bullish flag formation signalling continuance of the up move and offering a fresh entry opportunity. “We expect the stock to continue its current up move and head towards ₹587 in coming months as it is the 138.2% external retracement of the February-June 2022 fall (₹549-431),” it said in a report dated August 30.

The agency has retained its “Buy” call on SBI with the target price to ₹587, saying that the overall strength in the lending franchise and liability growth of 12-14% guidance along with a well-provisioned book remain positive. The agency believes that the bank’s focus on calibrated approach on growth, balance sheet strengthening coupled with strong liability profile along with healthy capitalisation makes it well placed to accrue earnings growth ahead. Recent quarter’s performance was decent on the business growth front with advances growing 14.9% YoY driven by the retail and corporate segment.

For April-June quarter of the current fiscal (Q1 FY23), SBI reported a 6.7% YoY drop in net profit to ₹6,068 crore as compared to ₹6,504 crore in the year-ago period, as losses in the treasury portfolio impacted the bank’s non-interest income. The net interest income (NII), or the difference between interest earned and expended, grew by 12.87% YoY to ₹31,196 crore compared with ₹27,638 crore in the corresponding quarter last year. The net interest margin (NIM) rose 8 basis points (bps) on a yearly basis to 3.23% from 3.15% in the same period last year.

On the asset quality front, gross non-performing assets ratio dropped by 141 bps YoY to 3.91%, while Net NPA ratio fell 77 bps YoY to 1%. Slippages ratio stood at 1.38%, improved by 109 basis points over 2.47% in the year-ago quarter, while provision coverage ratio (PCR) improved by 719 bps YoY at 75.05%. During the quarter under review, SBI’s balance sheet size crossed ₹50 lakh crore, while credit growth stood at 14.93% on yearly basis.