SBI becomes most profitable company in Q2, beats RIL

State Bank of India (SBI), the largest bank in the country, has become the most profitable company in India, with Rs 14,752 crore of consolidated net profit earned in the second quarter of FY23. The state-run lender beat Mukesh Ambani-led giant Reliance Industries, which earned a net profit of 13,656 crore during the same quarter.

So far, Reliance Industries has remained the most profitable company in India for decades. However, the state-run lender SBI surpassed the oil-to-digital conglomerate in terms of profitability in the fiscal second quarter ended September 2022.

On a standalone basis, SBI posted a net profit of Rs 13,256 crore in the July-September quarter, registering a robust growth of 74% from Rs 7,626.57 in the year-ago period. This was the lender’s best-ever quarterly result. SBI also posted a decent performance in all the key metrics, led by near-record loan sales, higher interest income and lower provisions.

SBI’s net interest income (NII) in Q2FY23 rose 12.82% to Rs 35,183 crore from Rs 31,184 crore year-on-year (YoY) led by strong business growth and margin expansion. Domestic net interest margin (NIM) improved 8 basis points on a YoY basis and 30 basis points on a QoQ basis to 3.3%, aided by improvement in yields. Credit cost improved by 15 bps YoY to 0.28%.

Pre-provision operating profit (PPOP) was at Rs 21,220 crore in the quarter under review, rising from Rs 18,079 crore in the year-ago period. Provisions declined to Rs 3,038 crore from Rs 4,392 crore, QoQ.

Asset quality of SBI improved in Q2FY23. Gross non-performing assets (NPA) ratio fell to 3.52% from 3.91%, sequentially. Similarly, net NPA ratio dropped to 0.8% from 1%, QoQ.

Gross advances increased 20.8% YoY, driven by retail & corporate segments. Deposits grew 10% YoY, while CASA moderated to 44.63% during the quarter.

However, on a half-yearly basis, Reliance Industries remains the most profitable company with Rs 31,611 crore net profit as against SBI’s Rs 22,077 crore.

SBI’s share price hit a 52-week high of Rs 622.90 apiece on the BSE on November 7 due to strong investors’ demand after robust Q2 performance. The stock is up more than 33% YTD, and the m-cap has crossed Rs 5.48 lakh crore.

ICICIdirect analysts pointed out that SBI has reported consistently upbeat performance, with this quarter seeing above-par growth in earnings and return ratios. The stock, long due for re-rating, should see a strong positive reaction, analysts wrote in ICICIdirect’s Research and Analysis Report on SBI Q2 earnings.

Our research team values the bank at ~1.3x FY24E adjusted book value and subsidiaries at ~Rs 192/share to arrive at a target price of Rs 700, revised from Rs 650 earlier. Our analysts believe key triggers for future price performance of SBI would be if credit grew at 14-16% as guided by the bank. The stock also has tailwinds in the form of steady margins, a healthy deposit franchise, and a strong demand pipeline, which will also aid business growth and overall performance.

Steady NIMs with adequate provision buffer are likely to aid healthy earning momentum ahead. Thus, improving return on equity (RoE) trajectory will aid improvement in valuations, our analysts believe. Continued traction in customer and business accretion via its “YONO” app and unlocking of subsidiaries’ value is expected to act as positive surprise for SBI, according to the research report.

Disclaimer: ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.