Stock gains as analysts feel asset quality remains reasonable

Despite posting its worst quarterly net profit in over two years, the State Bank of India stock has witnessed buying interest on the bourses in the last two days.

According to analysts, better-than-expected asset quality boosted investors’ sentiment.

35% dip to Rs 2,375 cr

SBI posted a sharp drop of 35 per cent in earnings at Rs 2,375 crore in the three months to September, hit hard by higher provisions for staff expenses, bad loans and investment depreciation. Standalone total income was Rs 37,199.92 crore as against Rs 32,953.47 crore in the same period a year ago.

According to Rikesh Parikh, Vice-President, Institution Corporate Broking, Motilal Oswal Securities, strategy of the new management and outlook would be critical on margin, asset quality and loan growth in FY14. “All in all it was a mixed performance and we maintain our positive stance on the company due to reasonable valuations,” he added.

Newly-appointed SBI chairperson, Arundhati Bhattacharya, said: “Provisions for loan losses, provision for staff wage hikes, provision for pensions and the investment depreciation, were the reasons for the dip in net profit in the quarter.”

On Thursday, the stock closed at Rs 1,722.40 on the BSE, a gain of 1.45 per cent over the previous day’s close. The stock’s 52-week high and low are Rs 2,550 and Rs 1,452.9, respectively.

Philips Capital, which retained a ‘buy’ call on SBI with a price target of Rs 1,900, said: “While core performance improved in the second quarter, driven by better-than-expected asset quality, sustenance of the same remains a big challenge for SBI. The bank has guided for a CDR pipeline of Rs 6,000 crore. We also remain sceptical of any further NIM (net interest margin) improvement from current levels.”

Rajiv Pathak, analyst with Dolat Capital, said: “Though the incremental stress on asset quality should show an improvement in the second half of the current fiscal, in absolute amounts, it would still remain high.

“One-time settlement schemes offered by other banks in the past had led to some improvement in asset quality for a short period, and SBI can also benefit from the same to some extent,” he added.

However, one Emkay Global analyst maintained a ‘sell’ call with a price target of Rs 1,490, citing ‘stressed asset’.

badrinarayanan.ks@thehindu.co.in

(This article was published on November 14, 2013)
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