SBI Stock Outlook :SBI, the leading stock in the PSU banking sector, has been under some pressure for the last 6 months. The stock has grown by just 1.5 percent in 6 months, while it has remained flat during 3 months. The brokerage house has now issued an alert on SBI stock, which is considered very special in the investors’ portfolio. Brokerage house Goldman Sachs has expressed apprehension of pressure on SBI’s margins and has reduced its rating from Neutral to Sell and has also lowered the target price from the current price. The brokerage has also given the reason why there may be a sell-off in the stock in the future.
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SBI: Sell rating with a target of Rs 742
Brokerage house Gouldman Sachs has reduced the rating on SBI shares from Neutral to Sell and has given a target price of Rs 742, which is lower than the current price of Rs 790. The brokerage says that…
1) The hurdles for sustainability of RoA are increasing. RoA is expected to decline from the peak level of 1 per cent in FY24 to less than 1 per cent in FY26E.
2) Given the increasing gap between deposit growth and loan growth, lower loan growth is expected in the future.
3) Expected increase in credit cost on rising slippages in MSME/Agri/Unsecured portfolio. The brokerage believes that the debate now focuses on narrowing of spread between ROE and COE, as valuations are rerated to 1.4x 12m fwd PB. As a result, the brokerage has cut its FY25-27 EPS by 3-9% and reduced its target multiple (12m fwd P/B) to 1.0x from 1.2x earlier.
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SBI: Growth under pressure
The brokerage in its earlier sector downgrade report (link) had also pointed to the continued pressure on the banking system’s margins arising from deposit growth challenges. Since then, margins for the sector have been squeezed along with the continued rise in deposit rates. In particular, SOE banks are witnessing a softening in lending spreads as per RBI data and this was also reflected in the 1QFY25 NIM compression for SBI.
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The brokerage says that deposit growth is slow, loan-deposit ratio is at peak and there is slow growth in high-yield unsecured loans. NIM is expected to moderate by c.10bps during FY24-27E. Also, given the difference in loan growth (1QFY25: c.16% YoY) and deposit growth (1QFY25: c.8% YoY) and the bank has been losing market share in terms of deposits over the last four quarters. The brokerage says that credit cost for SBI has bottomed out. Asset quality risks are emerging in this sector.
(Disclaimer: The views or advice on the stock are given by the brokerage house. These are not the personal views of Financial Express. There are risks in the market, so take expert advice before investing.)
