Research Analysts at Citigroup and Morgan Stanley are having a tug of war when it comes to Index Heavyweight State Bank of India. Morgan Stanley Downgraded the bank to Underweight [If you follow their MCSI, then you have to SELL the stock] while, Citigroup lowered the price target but still retained a BUY on the stock.
SBI reported a 21% sequential increase in NPLs. This was driven by higher agricultural NPLs (farmers stopped coming to branches to repay, after the debt waiver scheme announced by government – according to management). The other driver for higher NPLs is SME/ SSI – a sector witnessing some stress. Given that these remain focus areas for growth, we expect an NPL increase as we move forward. Moreover, with NPL coverage of 42%, credit costs could rise significantly.
Credit costs are likely to rise on account of low provisioning levels as well as low coverage ratio. Wage hikes/provisions will lead to significant increase in employee costs says Morgan report.
Morgan Stanley expects a FALL in EPS of SBI to Rs 102 from Rs 117 reported for FY08. Citi expects the EPS to be Rs 126 for FY09. Morgan Stanley has set a Target Price of Rs 1,550 while Citi has downgraded the target price from Rs 2,790 to Rs 2,370.
DalalStreet.Biz Analyst View: We feel SBI will see a dip growth this year but FY09 EPS is likely to be sustained at Rs 120. In our view the stock should trade at Rs 1,700 levels until a clearer picture emerges at the end of June-2008.