SBI gets ‘buy’ call from Kotak Institutional with 14% upside for stock to Rs 850

Analysts expect SBI to outperform other PSU banks given sharp convergence in multiples

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Analysts at Kotak Institutional Equities shared a ‘buy’ call on State Bank of India (SBI) and raised the target price to Rs 850 from Rs 760, implying an upside of 14 percent from the last close. This optimistic outlook stems from their belief that SBI has weathered most concerns with minimal impact on earnings.

The stock of India’s biggest lender has surged over 15 percent so far this year, as against a flat-to-positive move in the benchmark Sensex. SBI shares had hit 52-week high of Rs 777 on February 21.

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Analysts at Kotak said that they do not see a specific tailwind that would trigger re-rating for SBI in the short term. “We see SBI to outperform other PSU banks, given sharp convergence in multiples. We are valuing SBI at 1.4x book and 10x earnings for return on equity (RoE) at 15 percent,” the brokerage said.

As against outperformance with large public banks, SBI’s premium against Bank of Baroda and with other mid-tier public banks have declined sharply and is closer to best of times, said analysts at Kotak. They believe that SBI has done well to defend its market share on liabilities, while its underwriting has been better-than-expected.

Also read: Goldman downgrades ratings of SBI, ICICI Bank, Yes Bank, warns of stronger headwinds

On the other hand, SBI’s discount with HDFC Bank has also narrowed sharply. Though analysts expect outperformance with private banks to be slower, but believe that there is headroom available.

“We are building in a call that the extent of the differential in return ratios, loan growth, NIM and credit costs is not likely to be too different in the medium term, until we have clear evidence of weak underwriting from these players. Until then, relative performance is likely to have a higher weightage in stock ideas,” they added.

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