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Analysts revise SBI target price post Q1, but Voda Idea overhang remains

Topics sbi | Vodafone Idea | Markets

SBI
Concerns over Vodafone Idea's existence and worries that the telecom services provider may go belly up in the absence of any support from the government hit shares of State Bank of India (SBI) on Thursday. The stock skidded 3 per cent to Rs 443 on the BSE in the intra-day trade.

Analysts worry that Voda Idea's precarious position may hit the lender's asset quality going ahead. That said, most brokerages have not revised down their target price on the SBI stock just yet, in a hope that the precarious situation that the telco has landed itself in may get resolved soon.

"As per reports, SBI’s exposure to Vodafone is Rs 11,000 crore (funded and non-funded exposure), which is largely not provided for, as it is a standard asset. The management did say that the outlook remains uncertain there and they are 'hopeful' of a resolution," noted analysts at Macquarie.

Vodafone Idea - rebranded Vi last year - has been under stress, losing market share, while its mammoth Rs 1.8-trillion debt liability has raised concerns about its survival. The company’s efforts to raise Rs 25,000 crore from investors have not yielded result, in the absence of any relief measures from the government. The Supreme Court, too, has ruled against its application for recomputation of AGR dues, dealing a blow to its revival. READ HERE

The recent Vi development overshadowed SBI's strong Q1 performance, reported on Wednesday, where the Mumbai-based state-owned lender reported its highest ever quarterly profit after tax (PAT) of Rs 6,504 crore for Q1FY22, which was 55 per cent higher year-on-year. READ ABOUT IT HERE

Overall, most analysts have revised their target price on the stock post the stellar earnings show and see up to 31 per cent upside from current levels.

Here're the revised target prices on SBI:

Macquarie
Reco: Outperform | TP: Rs 580

While SBI’s earnings were in line with our estimates, we are pleasantly surprised by its slippages, which have been lower than most peers'. While most peers reported numbers well above 3 per cent, SBI's slippages at 2.8 per cent was a good outcome in a tough quarter. Almost ~30 per cent has already been recovered in July. Outstanding restructuring has also been normal and around ~1 per cent, in line with peers. We reduce credit costs and increase our sustainable ROE, raising our target price sharply by 23 per cent to Rs 580.

Jefferies
Reco: Buy | TP: Rs 550

Despite building in additional buffer provision, credit costs dipped to 1.6 per cent (1.8 per cent in 4Q). Overall buffer provision is limited at around 0.6 per cent of loans. We have raised our credit cost estimates marginally to factor the Covid 2.0 impact, but expect trends from 2Q onwards to move towards normalised levels.

We trim our FY22-23 EPS by 4 per cent as we incorporate marginally lower NII and provision estimates. SBI is a preferred recovery play in India and we reiterate our Buy rating with a rolled-forward target price of Rs 550 based on 1.3x June-23 adjusted PB.

HSBC
Reco: Buy | TP: Rs 530

SBI has several earnings levers that should take its RoA to 0.9 per cent by FY24 from 0.6 per cent in 1QFY22. An expansion in margins and a contraction in credit costs would drive RoA in the medium term. However, the core bank trades at ~0.86x FY23e BVPS. Incrementally, a gradual rerating should continue to drive upside in the stock price. We value the core business at 1.1x FY23e BVPS. We raise our target price to Rs 530. However, downside risks to our target are elevated asset quality risk and inability to improve margin profile.

Edelweiss Securities
Reco: Buy | TP: Rs 530

A lower SMA pool with controlled restructuring (90bps) is notable—asset quality performance outshone even private peers. But softer business traction and lower NIM cannot detract from that. Uncertainty over subsequent covid waves and a relatively low provisioning buffer (sub-40bps) still temper our enthusiasm on credit cost for FY22.

Motilal Oswal Financial Services
Reco: Buy | TP: Rs 600

Asset quality remains broadly on track despite elevated slippage, led by Retail/SME. However, restructuring and the SMA pool remain in check. We expect slippage to subside going ahead, assuming there is no third COVID wave or no severe impact from it. Overall, PCR remains healthy at ~68%, and it also holds unutilized Covid provisions of ~INR91b. The bank is well on track to keep credit costs in check.

ICICI Securities
Reco: Buy | TP: Rs 571

It has created additional covid provisions of Rs 2,700 crore taking cumulative covid provisioning to Rs90.65bn (40bps of advances). It has accelerated provisioning on non-fund based exposure (to the extent of Rs 2,800 crore). It built additional standard assets provisions towards some identified stressed sectors and made additional 5% provisioning over regulatory requirements on restructured pool. It recovered Rs10.9bn from one chunky account (reflected in miscellaneous income).

In FY22, it is targeting recoveries of Rs140bn from written off accounts. Specific provision coverage of 68%, covid provisions at 40bps, standard assets provisions of Rs 15,700 crore (60bps) and other provisions of Rs5,050 crore (~20bps of advances) suggest adequacy of provisioning. This will lower the burden on credit cost in coming quarters. We are building-in slippages of 1.7 per cent/1.4 per cent and credit cost of 1.3 per cent/1.1 per cent for FY22E/FY23E, respectively.

Emkay Global
Reco: Buy | TP: Rs 600

We trim our earnings estimates for FY22-23 by 5-3 per cent but expect SBI to deliver 13-15 per cent RoE over FY22-24E (seen before AQR). We like SBI among PSBs for its strong liability profile, high retail orientation, reasonable capital position, and sharply improving RoA/RoRWA/RoE, given renewed focus on profitability while maintaining market dominance and portfolio quality.

Risks on the downside are macro-slowdown and delay in corporate/retail credit demand; sharp rise in G-sec yields hurting treasury; and delay in corporate resolutions. 



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