State Bank of India (SBI), India’s largest public sector bank, reported its Q1FY25 results on Saturday, posting a net profit of Rs 17,035.2 crore, a 0.9% increase from the same period last year. However, despite the in-line results, SBI shares fell over 3% in early trading on Monday, hitting a day’s low of Rs 819.4.
At the last count, SBI shares were down over 2% at Rs 827.65 apiece on the BSE. The sharp decline in the stock price can be attributed to several factors, including lower deposit growth, rising provisions, and mixed brokerage recommendations.
Net Interest Income and Margin
SBI’s net interest income (NII) during the reporting quarter stood at Rs 41,126 crore, a 5.7% increase. However, this figure fell short of the Zee Business research desk’s estimate of Rs 42,300 crore. The bank’s net interest margin (NIM) also declined, recording at 3.22% versus 3.3% in the previous quarter. The research desk had estimated NIM to come in at 3.2%.
Provisions and Asset Quality
Provisions at SBI soared sharply by 70.4% during the reporting quarter to Rs 4,518 crore. The bank also saw a significant increase in fresh slippages, which rose 104.4% sequentially to Rs 7,903 crore.
Despite the rise in provisions, SBI’s asset quality remained largely intact, with the management expecting loan growth of 15% and margins to remain at current levels for FY25.
Deposit Growth Concerns
The primary concern weighing on SBI’s stock price has been the weak deposit growth of 8.18% during the quarter. This figure is significantly lower than the Zee Business research desk’s estimate of 14-16%.
Deposit growth is a crucial metric for banks, as it directly impacts their ability to lend and generate interest income. The muted deposit growth at SBI has raised concerns among investors and analysts.
Brokerage Recommendations
Global brokerages have mixed views on SBI after its Q1FY25 earnings:
- CLSA maintained an “Outperform” rating on the stock and raised the target price to Rs 1,075 per share, implying an upside of 27% from the previous close. The brokerage highlighted that loan growth remained healthy, but deposit growth is lagging. NIM has been largely stable, and asset quality is also intact.
- Bernstein has maintained a “Market Outperform” rating on SBI with a target price of Rs 810. The firm notes that while the normalization pain is evident, the return on assets (RoA) remains above 1%. However, Bernstein points out that deposit growth for SBI is sharply below the system average.
- JP Morgan has retained a “Sell” rating on SBI with a target price of Rs 725 per share. The report highlights that while lower operating expenses and higher other income helped offset a miss in net interest income (NII) for Q1, credit costs have increased. Deposits declined by 0.3% quarter-on-quarter, aligning with the sector’s muted deposit growth.
- UBS also has a “Sell” rating on SBI with a target price of Rs 725, citing concerns that the bank’s return on assets (RoA) may fall below 1% due to rising credit costs and a lower core pre-provisioning operating profit, which leaves minimal cushion on current profitability.
- In contrast, Investec maintains a “Buy” rating on SBI with a target price of Rs 880 per share. The brokerage acknowledges a margin miss and lower core pre-provisioning operating profit but expects strong credit growth of 15% year-on-year for FY25, with SBI having an adequate liquidity buffer.
Stock Performance
Over the past month, SBI stock posted a negative return of 3.62%. However, over the past six months, the stock delivered positive returns of 28.88.41%, indicating a period of uptrend. Year-to-date figures also remain positive, showing a gain of 30%. Moreover, over the last twelve months, the stock achieved a return of 45.91%, highlighting its resilience over the longer term.
Conclusion
Despite reporting strong Q1FY25 results, SBI shares declined sharply due to concerns over weak deposit growth, rising provisions, and mixed brokerage recommendations. While some brokerages remain optimistic about the bank’s long-term prospects, citing healthy loan growth and stable asset quality, others have raised concerns about the potential decline in return on assets due to rising credit costs.
As the banking sector navigates through the challenges posed by the economic environment, SBI’s ability to maintain its market leadership and deliver consistent performance will be closely watched by investors and analysts alike.
