Q3FY24 Review: State Bank of India: Disappoints on already weak expectations

5 Feb 2024 , 11:02 AM

State Bank of India (SBI)’s Q3 core Pre-provisioning operating profit (PPOP) de-grew 20% over the year-ago quarter, and Profit After Tax (PAT) was 30% below consensus due to one-time provisions for pension liabilities and DA costs. NIM contracted 7 basis points sequentially despite LDR inching up by 255 basis points and consumption of excess liquidity (LCR down 7 percentage points to 139%). Asset quality was stable, but reversals in non-NPA provisions resulted in only 8 basis points of credit costs.

SBI’s Proforma CET1 ratio is at 10.4%, and it can raise capital if the growth momentum accelerates. Valuations are inexpensive, profitability seems to be plateauing, believe analysts at IIFL Capital Services.

Analysts at IIFL Capital Services have revised their FY24/25/26 estimates by (10)%/+7%/(5%), respectively. They have rolled forward to FY26, and their Target Price has increased to ₹660 (2% upside). While the NIMs should remain range-bound in the near-term, as the asset quality normalizes, analysts at IIFL Capital Services expect ROAs to peak at 1% in FY25, and thus see limited scope for re-rating.