Morgan Stanley believes SBI is Appropriate to Benefit from cyclical lift

The rally in SBI’s stock could have got another leg with global brokerage Morgan Stanley by increasing its one-year target price to Rs.600 apiece. In their bull-case, the target price is pegged at Rs. 830, implying a 100 percent upside from Wednesday’s close.

In its report data, the company states, “SBI has built a strong retail franchise and also sustained its deposit market share. Even on digitization, the progress has surprised, unlike other state-owned banks. As the corporate cycle turns, we expect earnings estimate upgrades and significant re-rating.”

The rally, Morgan Stanley believes, that it could continue as SBI has a much better balance sheet and profitability, and is well placed to improve earnings as the cycle turns. Against this backdrop, the stock could re-rate sharply and present significant upside, it said.

Strong retail loan growth: MS notes that retail loans now contribute 35 percent of overall loans compared with 20 per cent five years back. The share of relatively less risky loans has also moved up.

That apart, SBI's retail asset quality remains superior to other SOE banks and is in line with that of large private banks. At the end of FY20, SBI’s gross non-performing assets (GNPA) ratio in the retail segment was 1.1 percent, lowest among PSBs, and third in the entire banking space.

Enhanced macro-economy: Drawing parallels with the economic growth clocked by India in early 2000s, analysts at the brokerage that India is at an inflection point that marks the start of a new virtuous growth cycle. Led by accommodative monetary policy and supportive fiscal policy; favourable external demand; and likely recovery in private capex in the next 12 months Morgan Stanley believes India could log gross domestic product (GDP) growth of 12.1 percent in FY22 up from previous estimate of 10.1 percent, and of 6.7 percent in FY23 up from 6.2 percent.

The report states, "In early 2000s, when the economy recovered, SoE banks registered significant outperformance in the initial years. Therefore, SBI could gain significantly as it is better placed than other PSBs in terms of profitability and capitalization.”

Focus on digitization: SBI, the brokerage says, has maintained its market share (in terms of deposits and digital parameters) despite asset quality pressures over the past five years. Registered users on its YONO app have jumped from 7.3 million in Q4FY19 to nearly 33 million in Q3FY21. Moreover, its online market place gross merchandise value (GMV) has increased from Rs 50 crore in Q1FY21 to Rs 230 crore in Q3FY21.