CLSA sees up to 59% upside potential in SBI; stock jumps 3%

NEW DELHI: Shares of SBI climbed over 3 per cent in Friday’s trade after foreign brokerage raised the target price for the stock to Rs 310 from Rs 270 earlier. The revised target price suggests a 59 per cent potential rally in the stock over Thursday’s closing of Rs 194.70.

Following the development, the stock rose 3.49 per cent to hit a high of Rs 201,50 on BSE.

The foreign brokerage said that SBI presents a deep value opportunity, as the state-run lender is relatively better positioned on asset quality post-Covid-19, driven by high government share in the loan book.

“Unlike PSU peers, SBI has been able to defend/gain share versus private banks. Also, YES Bank‘s bailout balanced minority and national interest well and removes a key risk. SBI subsidiaries are best in class in their segments and should remain steady compounders,” CLSA said.

CLSA expects SBI’s return on equity (ROE) to normalise to more than 10-11 per cent level post-Covid-19. It sees the prevailing valuation at 0.3 times June 2020 book as undemanding.

“While SBI is perceived as a lender of last resort, YES Bank’s bailout demonstrates the ability of government and SBI to balance national interest versus minority interest,” it added.

All SBI subsidiaries have compounded at 25-40 per cent compounded annually over the last 3-5 years and have become market leaders, driven by SBI’s distribution strength, CLSA said.

“These subsidiaries explain more than 60 per cent of the current price, and 40 per cent of our target price should continue to compound at a fast pace. The subsidiary contribution also ensures that capital raising is not book-dilutive like other PSUs,” the global brokerage said.

Meanwhile, unlike peer PSU banks, SBI has gained or maintained share in retail assets, Casa, overall loans, and deposits through the last decade, leading to more than a 10 per cent annual growth in core pre-provision profit (PPoP) in the past 5-10 years, it added.