Goldman sees SBI as one of the best proxies on improving confidence in the financial sector, which has witnessed $20 billion worth of capital raising, moderating concerns on YES Bank and improving credit spreads for NBFCs.
“SBI is managing its balance sheet well by proactively making provisions, and has one of the highest provisions on total stressed book including moratorium loans,” said Goldman Sachs.
The brokerage has raised EPS estimates following first quarter earnings by 34% on average for FY21-FY23 period on reduction of cost of risk by 40-55 basis points in FY21-FY23 and marginally lower net interest income estimates due to excess liquidity and delayed recovery in lending growth.
Goldman Sachs expects the PSU bank to trade at a standalone valuation of 0.5 times FY21 book value per share.
The global brokerage said the current valuation of 0.2 times FY21 estimated book value per share makes for an attractive entry point as YES Bank’s tail risk is likely under control post the recent capital raising and stabilizing deposit base, better balance sheet and pre-provision operating profit management by SBI in this cycle and steep valuation discount to ICICI Bank and Axis Bank despite much better balance sheet management.
Goldman Sachs said in its bull case scenario, if the growth trajectory improves and asset quality turns out better than expectations, the stock could further re-rate to 0.7 times FY21 estimated book value per share.