Should investors bet on SBI’s low valuation? : State Bank of India has reported a standalone net profit of 3581 crore rupees in q4 aided by a one-time gain of 2731 cross from the stake sale in its subsidiary SBI cards.
In our ideas for profit today I will discuss if investors should bet on State Bank of India’s low valuations. Where SBI’s operating performance was marked by a reasonable loan growth and also controlled expenses however higher provisions pulled down the profit this time around on the asset quality front the slippage Azur say the gross additions to the non-performing assets or NPS were quite contained and were the lowest in the last four quarters as well.
But should SBI is downwards trending and paise be a matter of rejoice knowing that COVID 19 is likely to hit hard the asset quality of the entire banking sector.
Why should investors really consider SBI Roled Now
Well Cove it 19 will definitely add to banks asset quality woes and also impacts profitability however SBI is well equipped to weather the storm given the sheer size of it. The balance sheet of excess of 40 lakh crore rupees as at the end of March 2020.
SBIadvanced booking book also grew by 6 percent year-on-year and also driven by a lot of loans the domestic loan book growth was also slowed for the true 4 percent year earlier but the overseas advances growth of 18 percent year-on-year supplemented the overall loan growth.
Now Banks advances under the moratorium at 23% of the total loans are also relatively lower when you compare it with many other peers. SBI was able to also maintain the low cost of current and savings accounts deposits or cases at around 45 percent of the total deposits and has gained a market share in overall deposits as well as castle deposits.
Now despite the overall loan book growth the net interest income declined as the domestic net interest margin contracted to two point nine four percent in q4 fi 20 which is a decline of eight basis points here and here. Now in I was at Berkeley impacted higher interest reversals due to the slippage is in its a grave real lending book as well.
Now despite the broad-based slowdown SBI is retail loan grew by fifteen percent year-on-year which is quite encouraging right now. Corporate advances were almost flat while SME segments or 7% fall in loans outstanding. Now deposits growth at 11 percent year-on-year was ahead of the advances growth a spell controlled operating and expenses has also been the key strength of the bank so far.
The key positive for the bank is the high provision coverage ratio or the PCR which stood at 84 percent at the end of March improving by 489 basis points here. Interestingly SBI has not created any specific COVID related provisions unlike many other banks well this is also concerning we do know that monetizing the stakes in the subsidiaries can really help the bank meets the higher provisioning needs.
Now SBI enjoys a healthy capitalization strong liquidity and can also raise additional funds by selling stake in some of its valuable subsidiaries going forward, and well at the current market price of say 189 rupees per share the valuation of the stock at significantly below fi 22 estimated code book value. So that is encouraging and buying SBI stock at this price is perhaps getting the valuable subsidiaries right now for free.
Now that said the stock can remain highly volatile due to the uncertainty of covered 19 and cannot emerge unscathed from the ongoing macroeconomic slump. Nevertheless given the low valuations the country’s largest bank is worth a bet for long-term investors waiting to play on the economic recovery cycle.
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