SBI gains 3% ahead of September quarter earnings, slippages likely to fall

Shares of State Bank of India gained 3.4 percent intraday on October 25 ahead of likely fall in slippages in quarter ended September 2019. Earnings will be announced later today.

The stock lost more than 20 percent in the last three months. It was quoting at Rs 269.90, up Rs 7.20, or 2.74 percent, on the BSE at 12:22 hours IST.

The profit is expected to be at around Rs 1,875.9 crore in the September quarter, rising 98.5 percent compared to year-ago but may decline 20 percent sequentially due to deferred tax assets adjustment, according to a poll analysts conducted by CNBC-TV18.

The profit could be supported by lower provisions and gained from stake sale in SBI Life insurance.

“Sale of shares in SBI Life has led to Rs 3,000 crore of gains which will mitigate DTA markdown impact which we assume will be spread over three quarters,” said Prabhudas Lilladher which expected net interest income to increase 12 percent and pre-provision operating profit to rise 24 percent YoY.

Motilal Oswal, which has buy call on the stock, expects the loan growth of 13 percent YoY, led by growth in retail book and deposit growth at 8 percent YoY. NII is expected to increase by 12 percent YoY due to lower interest reversals and stable margins, according to the brokerage.

Asset quality is the key thing to watch out for during the quarter as most analysts expect slippages to fall to around Rs 11,000-12,000 crore from Rs 16,995 crore seen in the June quarter. Non-performing assets could also see some improvement sequentially due to recovery from NPAs or write-offs.

“Stress addition is likely to come in at 2.2 percent levels, as we believe that most of the stress has been recorded in previous quarters. Developments on the IBC-related accounts and resolution of power assets remain a key monitorable,” said Motilal Oswal which expected gross NPA at 7 percent (against 7.5 percent QoQ) and net NPAs at 2.8 percent (against 3.1 percent QoQ).

The market will also closely watch the commentary on telecom exposure as the Supreme Court has rejected the telecom companies’ definition of Adjusted Gross Revenue (AGR). The bank has exposure of around Rs 40,000-50,000 crore to telecom space.