3 min read Last Updated : Sep 06 2024 | 10:11 AM IST
Goldman Sachs on SBI: Public sector lender State Bank of India (SBI) shares slipped in trade on Friday, September 6, 2024. The SBI scrip dropped as much as 2.81 per cent to an intraday low of Rs 795.60 on the Bombay Stock Exchange (BSE).
The SBI stock was also the top loser on 30-share Sensex.
The fall in SBI share price came after media reports said that the New York-based brokerage Goldman Sachs has downgraded SBI to ‘Sell’ from ‘Neutral’.
Goldman Sachs also reduced its target price for SBI to Rs 742, down from Rs 841. This new target suggests a potential downside of 9.35 per cent from Thursday’s closing price of Rs 818.60.
Triggers behind the downgrade
Goldman Sachs has identified several challenges contributing to a downgrade of SBI’s outlook, highlighting a peak in return on assets (RoA) as a critical factor, according to reports. The analysts also foresee a likely de-rating in valuation for the bank.
According to Goldman Sachs, SBI’s risk-reward profile is becoming increasingly unfavourable due to growing obstacles impacting the sustainability of its RoA.
They project that the RoA, which is expected to exceed 1 per cent in fiscal year 2024, will decline to below 1 per cent by fiscal year 2026.
Additionally, analysts at Goldman Sachs anticipate a slowdown in loan growth due to a widening gap between deposit and loan growth. They also highlighted that the bank has been losing market share in deposits over the past four quarters, which is expected to continue.
As a result, the analysts have revised their growth projections downward by 100-400 basis points for FY25E-FY27E.
The analysts also predict rising credit costs due to increased slippages in Micro, Small & Medium Enterprises (MSME), agriculture, and unsecured loan portfolios. Consequently, analysts have reduced their earnings per share (EPS) estimates for FY25-27 by 3 per cent-9 per cent and have lowered the target multiple from 1.2x to 1x.
Q1FY25 performance
State Bank of India (SBI) announced its June quarter of financial year 2025 (Q1FY25) results on August 3, 2024. The lender reported nearly flat standalone net profit for Q1FY25, totaling Rs 17,035 crore, compared to Rs 16,884 crore in the same quarter of the previous financial year (Q1FY24).
The bank’s total income rose to Rs 1,22,688 crore for the first quarter, up from Rs 1,08,039 crore a year earlier. Interest income also increased to Rs 1,11,526 crore, compared to Rs 95,975 crore in the previous year.
SBI’s gross non-performing assets (NPAs) improved, decreasing to 2.21 per cent of total advances from 2.76 per cent at the end of June last year. Net NPAs also saw a reduction, falling to 0.57 per cent in June 2024 from 0.71 per cent a year ago.
At 9:53 AM, shares of SBI were trading 1.54 per cent lower at Rs 806 per share. In comparison, BSE Sensex was trading 0.42 per cent lower at 81,859.77 levels.
First Published: Sep 06 2024 | 10:03 AM IST
https://www.business-standard.com/markets/news/goldman-sachs-downgrades-sbi-to-sell-slashes-target-price-share-slips-124090600168_1.html
