SBI shares rally over 15% in 5 days; Morgan Stanley, Nomura, others see up to 45% rally post Q2

State Bank of India share price rallied 15.56 per cent in five trading sessions, while it added 5.6 per cent since the announcement of July-September quarter earnings. India’s largest public-sector lender registered a 52 per cent on-year rise in net profit at Rs Rs 4,574 crore from Rs 3,011 crore in the same period last year. Sequentially, SBI’s net profit rose 9 per cent from Rs 4,189.3 crore reported in the first quarter of the current fiscal. Post second-quarter earnings, brokerages have turned bullish in SBI stock, with up to 45 per cent rally in the price. Foreign brokerage firm Morgan Stanley has an overweight rating to the stock, with 28 per cent upside in the target price.

The firm in its report highlighted that as SBI stock is down 38 per cent YTD (vs (-2%) for the Sensex and (-19%) for the Bankex), the risk-reward balance is now attractive. The stocks of large subsidiaries (SBI Life, SBI Cards) have done relatively much better. The brokerage firm said that the bank’s second-quarter earnings were much better than it expected on asset quality trends.

SBI’s overall collection efficiency was 97 per cent in September 2020 and has improved further in October 2020, which wasn’t very different for the retail segment and is helped by 70 per cent loans to salaried borrowers (of which 70 per cent are government employees). “This also implies relatively good trends in the SME segment, partly helped by the government guarantee package,” it added.

Similarly, Nomura too has a ‘buy’ rating with a target price of Rs 275, an upside of 26 per cent. It said that SBI’s valuation at 0.3x Sep-22F book is clearly undemanding, in its view, and in line with much weaker PSU peers. With a much superior franchise both on the liability and asset sides and market share gains both on retail asset and liabilities over the past four years, Nomura believes a premium over PSU peers is warranted.

Analysts at JM Financial said that while the stock has rallied 37 per cent from recent lows, SBI’s core-bank valuations (at 0.4x FY22E adj. BVPS) are still close to their lowest ever levels and provide an attractive entry point for long term investors. The brokerage firm has given a target price of Rs 300, implying an upside of 45 per cent from yesterday’s close.

Analysts at Emkay Global Financial Services has also recommended to buy SBI shares, with over 21 cent upside. It has pegged a target price of Rs 265 for 10 months period. It prefers SBI among PSBs for its strong liability profile, high retail orientation, reasonable capital position and undemanding valuations (0.3x FY22E core ABV). While the key risks include slower growth, higher-than-expected pressure on margins and higher NPA formation in the corporate/SME book.