SBI shares in focus on nod to set up SBI Funds Management subsidiary at IFSC Gift City

Shares of State Bank of India (SBI) will be focus on Wednesday morning after the state-run bank said it has received regulatory nod for setting up of a wholly-owned subsidiary by SBI Funds Management at IFSC Gift City. In a brief exchange filing, SBI said the Competent Authority accorded an in-principle approval on August 29 to set up a wholly-owned subsidiary by SBI Funds Management Ltd at IFSC Gift City, Gandhinagar, subject to receipt of all regulatory approvals. The announcement came post market hours of Tuesday.

Shares of SBI are down 7 per cent in the last one month. This is even as the June quarter profit of the state-run lender came in better than expectations. SBI clocked a 178.24 per cent year-on-year (YoY) rise in standalone net profit at Rs 16,884.29 crore for the June quarter compared with Rs 6,068.08 crore in the same quarter last year. This was the record net profit for the fourth quarter in a row. The profit figure also came in better than the 120-160 per cent growth that analysts forecast ahead of the quarterly results.

Net interest income (NII) for the quarter stood at Rs 38,905 crore, up 24.71 per cent over Rs 31,196 crore in the corresponding quarter last year. This was largely in line with Street estimates. Net interest margin (NIM) improved 24 basis points YoY to 3.47 per cent in the June quarter from 3.23 per cent in the year-ago quarter. NIM, however, was down 37 basis points over 3.84 per cent in the March quarter.

Sharekhan noted that SBI's Q1 surprised negatively with higher-than-expected margin compression and that the NIM outlook continues to remain negative for at least the next two quarters.

Systematix Institutional Equities earlier this month resumed coverage on the stock with a 'Buy' rating.  The brokerage has a target of Rs 670 valuing the standalone bank at 1.2 times FY25 adjusted book value per share for average FY24/25E RoE of 17 per cent.

"We assign a value of Rs 178 per share for its investment in subsidiary companies. We build in advances CAGR of 12.6 per cent over FY23-25E fuelled by 11.5 per cent CAGR in deposits. NIMs and spreads are expected to trend lower than FY23 levels driven by lagged re-pricing of deposits. Consequently, we estimate a modest 8.5 per cent CAGR in net interest income. Tighter opex growth coupled with improvements in non-interest income fuel our operating profit CAGR estimate of 12 per cent," it said.