Jefferies upgrades SBI to ‘buy’, puts target price at Rs 600

The stock has fallen 10 per cent from its peak in the last month. The broker said the correction has made it more attractive and its target is based on 1.4 times Sep-23 adjusted P/B for the bank.

“SBI has done well in managing its asset quality and we expect the superior trend to sustain, reflecting the quality of its loan book. Our concerns on loan growth are well-factored at the current valuation, making it a good entry point. We expect a slight pickup in loan growth from current levels and see 9 per cent CAGR over FY21-24,” said analysts at Jefferies.

They have arrived at the sum of the parts (SOTP) valuation as follows: Core (Rs 419), SBI Life Insurance (Rs 90), SBI cards (Rs 86), SBI Asset Management (Rs 36) and holding company discount at Rs 35.

The thesis behind Jefferies bullish view is:

• Jefferies sees SBI as one of the best PSU bank franchises with a strong CASA franchise, digital-banking platform
• Better loan underwriting standards vs PSU peers which has allowed it to maintain asset quality better than its PSU peers
• Uncertainty around management change is behind us and with macro trends and collection improving the key overhang around moral pressure towards “public service” should recede and risks in SME/mid-corporate books should ease
• Valuations, though, are attractive, with value discovery at card and insurance subsidiaries

The brokerage house said the stock may hit Rs 690 in a bull case while the same may plunge to Rs 410 in bear case.