Despite resolution of Essar Steel, State Bank of India (SBI) may report subdued December quarter (Q3FY20) numbers as analysts expect slippages to rise courtesy Dewan Housing Finance Corp Ltd (DHFL). They, however, expect operating performance in terms of net interest income (NII) to improve during the recently concluded quarter. The bank is slated to report its Q3FY20 earning on Friday, January 31.
At the bourses, the stock has underperformed in the past six months. The stock of the lender has slipped 3.4 per cent during the period under review, as compared to a rise of 10 per cent in the benchmark S&P BSE Sensex. The S&P BSE Bankex index, too, has gained 8.2 per cent during the period.
In the corresponding quarter of the previous fiscal (Q3FY19), India’s largest public sector lender clocked a net profit of Rs 3,955 crore. The same stood at Rs 3,012 crore in the September quarter of FY20 (Q2FY20). The NII, meanwhile, was Rs 22,691 crore and Rs 24,600 crore in Q3FY19 and Q2FY20, respectively.
Here is what leading brokerages expect from the bank’s Q3FY20 earnings:
Emkay Global
According to the analysts at the firm, the state-owned bank is likely to report “muted growth, which coupled with Marginal Cost of Funds based Lending Rate (MCLR), cut should have some impact on net interest margin (NIM)”.
“Provisions could be elevated in Q3FY20 due to pending non-performing assets’ (NPA) provisions of Rs 4,650 crore for FY19, along with accelerated provisions on DHFL, along with slip in other large accounts including Suzlon (NFB), CG Power, and ADAG NBFC group,” they wrote in an earnings preview note.
They peg the net interest income at Rs 25,625.8 crore, a growth of 13 per cent year-on-year (YoY), and 4.2 per cent sequentially. Further, NIM is seen improving by 20 basis points (bps) YoY, and 6 bps QoQ, at 3 per cent.
Motilal Oswal Financial Services
“SBI is well poised for an earnings recovery, led by its steady operating performance at the pre-provisioning operating profit (PPoP) level, recoveries from large NCLT resolutions, and normalisation in credit cost to 1.3 per cent/1.1 per cent in FY21/22,” analysts at the brokerage firm said.
Analysts at MOFS estimate the PPoP to come in at Rs 15,468.6 crore, up 22.5 per cent YoY, but down 15 per cent sequentially. Besides, the net profit is seen jumping over 80 per cent to Rs 7,198.2 crore, as against the net profit logged in the December quarter of FY19.
They project the bank to recover (write-back provisions) Rs 12,000 crore from the resolution of Essar Steel; Rs 800 crore from Ruchi Soya, Rs 4,000 crore from Bhushan Power; and Rs 1,900 crore from Prayagraj.
Prabhudas Lilladher
“SBI has a strong provision coverage ratio (PCR) of 63 per cent (81 per cent including technical write-off) which could touch 70 per cent by FY21 end, putting the bank in strong position on asset quality. Slippages are also trending down except a few unpredictable cases, while recovery/upgrades will see strong traction bring down overall credit cost from 200 bps of loans to 120-130 bps of loans in FY21 end,” they said in an earnings expectation note.
For Q3FY20, the brokerage expects the bank to report a loan growth of 9 per cent YoY and 4 per cent QoQ at Rs 22.32 lakh crore. Credit cost, meanwhile, is seen at 1.46 per cent. On the downside, they estimate the net profit to fall by 24 per cent YoY to Rs 3,004.3 crore, and by 0.2 per cent sequentially.
Edelweiss Securities
Analysts at Edelweiss expect divergence and provisions from DHFL to off-set the recoveries from the resolution of the Essar Steel account. They see the net profit rising 41 per cent YoY and 85.2 per cent QoQ to Rs 5,577.8 crore. “Commentary on the anticipated second wave of stress will be watched out for given SBI’s dominant exposure to some of these names,” they said.
ICICI Securities
Analysts at ICICI Securities, too, expect the bank to make a substantial provision for future delinquency and for DHFL using the recovery from Essar.
“Accordingly we park almost 80 per cent of the provisions as general provisions. Slippages will likely include HFC exposure of Rs 10,000 crore leading to total slippages of Rs 18,000 crore,” they wrote in an earnings preview note.
They added: Resolution of Essar is seen to offset slippages from DHFL leading to decline in gross NPA and net NPA ratio by 16 bps and 3 bps, respectively to 7.03 per cent and 2.76 per cent.
They peg the net profit at Rs 7,787.5 crore, a jump of whooping 97 per cent YoY and 158.6 per cent QoQ.
Source: Maalaimalar
