Is SBIN Stock A Good Investment – State Bank of India (SBIN) is the largest public sector bank in India with over 22,000 branches across the country. Often referred to as the ‘Big Daddy’ of Indian banking, SBI enjoys dominant market position and strong backing from the government. But with challenges plaguing PSU banks in recent years, is SBI stock still a good investment bet for long term investors? Let’s analyze in detail.
Overview of State Bank of India (SBI)
Here are some key facts about SBI’s business profile:
- Founded in 1806, SBI is the largest commercial bank in India and ranked #41 globally
- It has over 22,000 branches across India with presence in 36 other countries
- SBI accounts for over 20% market share in deposits and loans among Indian commercial banks
- Operates through 14 regional hubs and 57 Zonal Offices across India
- Products include deposits, advances, payment services, digital banking, credit cards, wealth management and investment banking
- SBI Life Insurance and SBI Funds Management are listed subsidiaries of SBI
SBI enjoys strong competitive advantages arising from Government ownership, extensive branch network, strong brand positioning and healthy CASA franchise. But outlook remains challenging.
Detailed Analysis of SBI’s Recent Financial Performance
Let us analyze SBI’s financial metrics over the last 3 years to gauge its performance:
- Total income has increased from Rs 3.1 lac crores in FY19 to Rs 4.2 lac crores in FY22 driven by loan growth
- Net Interest Income or NII has grown at 12% CAGR over this period
- Other income also witnessed healthy growth on the back of improved fee income
- Operating expenses have remained elevated resulting in cost to income ratio of ~50%
- Credit costs have moderated over the past year aiding profit growth
- Net profit increased sharply from Rs 14,500 crores in FY20 to Rs 31,600 crores in FY22
- Return on Assets has improved from 0.4% to 0.7% though still below optimal level
- Capital Adequacy Ratio was comfortable at 13% as of Mar’22
While financial performance has improved lately, SBI continues to grapple with challenges around asset quality, credit costs and weak return ratios relative to potential.
SBI Share Price Trends and Valuation Analysis
Here are some key details regarding SBI’s share price performance and valuation metrics:
- SBI stock price has risen from around Rs 150 in Nov 2012 to current level of Rs 530, generating over 3x returns in 10 years
- Market Cap stands at Rs 4.7 lac crores as on Nov 2022 compared to Rs 1.5 lac crores in Nov 2015
- Trades at reasonable valuation with 1 year forward P/B multiple of 1.1x
- P/E ratio of 10x based on FY23 earnings indicates modest valuation for the large PSU bank
- Price to Book value is also not demanding compared to historical levels
- Offers dividend yield of ~3%
To summarize, SBI stock appears reasonably valued currently from a medium to long term perspective.
Growth Drivers and Key Risks for SBI
SBI is well positioned to deliver healthy growth over coming years on the back of following positives:
- Pick up in economy activity to drive credit growth and retail loans
- Strong liability franchise with over 40% CASA ratio provides cost advantage
- Improving asset quality and lower credit costs to support profit growth
- Strong capital position with healthy CAR and fund raising ability
- Leveraging technology to improve processes, drive operating efficiency
- Synergies from integrating merged entities and growing subsidiary contribution
However, some risks SBI continues to grapple with:
- Macroeconomic challenges impacting loan growth and asset quality
- Competition from private banks affecting margins and market share
- Need to raise productivity and improve return ratios
- Execution risks in integrating merged banks and subsidiaries
- Regular government interference in strategy and leadership changes
- Low float and retail shareholding affects stock liquidity
Overall, while SBI’s long term growth outlook remains reasonably positive, near term challenges are likely to affect performance.
The Final Verdict: Should You Invest in SBI Stock?
Pulling together the analysis so far, here’s a perspective on whether SBI fits the bill of a good investment:
Positives – Largest PSU bank with strong market position, improving financial performance, reasonable valuations, healthy dividends and growth tailwinds.
Negatives – Concerns around weak return ratios, corporate loan concentration, competition eating away market share and regular management changes.
SBI remains a solid franchise to ride India’s long term economic growth but needs to address weak return ratios. Government ownership provides comfort but also implies some volatility.
Investors with investment horizon of 3-5 years can accumulate SBI on dips given its leadership position and reasonable upside potential. But keep expectations moderate and be ready for some volatility.
Frequently Asked Questions on SBI Stock
Is SBI a good stock to buy now from long term perspective?
SBI stock appears reasonably valued currently trading at 1.1x FY23 projected book value. The bank is well positioned to benefit from India’s economic growth given its dominant market share, extensive reach and strong brand. Long term investors can consider buying SBI on dips from a 3-5 year perspective.
What is the outlook for SBI share price in 2023?
Most analysts have a positive outlook on SBI with average target price of Rs 650-700 for 2023. This indicates share price potential upside of 15-20% in next 12 months. Key triggers are credit growth revival, lower credit costs, subsidiaries value unlocking and reasonable valuations.
Should I buy SBI shares at the current market price?
SBI stock can be accumulated at current levels from a medium to long term perspective given the reasonable valuations of under 1.2x FY23 projected book value and improving growth outlook. But staggered buying on dips would be a better strategy than lumpsum investment at current price.
Is SBI a good stock for dividend income? What is the dividend yield?
Yes, SBI has consistently paid good dividends over the years. SBI paid a dividend of Rs. 7 per share for FY22. At current price of Rs 530, this translates into a dividend yield of 1.3% which is modest. Investors can expect dividend yield in the range of 1-1.5% from SBI stock.
What are the key downside risks to investing in SBI?
Key concerns and downside risks are execution delays in subsidiaries value unlocking, corporate loan defaults affecting asset quality, lower than expected credit growth, losing market share to private banks, regular management changes by Government affecting stability and weak return ratios limiting re-rating potential.
Should I book profits in SBI stock after the recent rally?
SBI stock has rallied nearly 25% from lows of Rs 420 seen in Oct 2022. Investors can consider booking partial profits if stock rises beyond Rs 600 mark in near term. However, long term investors can still hold their positions given the reasonable valuations and upside potential.
Does SBI have multibagger return potential in 5 years?
SBI stock price can potentially double over next 5 years to around Rs 1000-1100 driven by recovery in return ratios, earnings growth of 12-15% and re-rating. However, strong execution by SBI management and favourable macro environment will be key factors for such multibagger returns over coming years.
Is SBI a better banking stock to buy compared to ICICI Bank?
Compared to ICICI Bank, SBI offers more modest growth but provides stability given government ownership. ICICI is likely to deliver higher returns but comes with slightly higher risk. Investors need to analyze individual risk appetite and return expectations while deciding between the two banking stocks. Allocating to both as a mix is an ideal strategy.
What is your investment view on SBI for 2025?
We expect SBI to deliver 12-15% EPS CAGR over FY22-25 driven by retail loan growth, lower credit costs and improved productivity. Subsidiaries value unlocking offers additional upside potential. We see SBI stock trading around Rs 800-900 by 2025. But upside trajectory will not be linear and Investors must ride out volatility.
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