SBI's exposure to Adani Group manageable: Jefferies

Amid concerns over lenders' debt exposure to Adani Group companies, brokerage Jefferies said that in the case of State Bank of India, the exposure is manageable and it sees limited risk.

"Exposure to Adani Group at 0.9% is slightly ahead of PSU banks (0.7%), but mostly to operating/cash flow-making entities and there is no promoter pledge. We see limited risk," Jefferies said.

The brokerage has raised its FY23 earnings estimate by 11% and FY24-25 estimates by 4-5%. It is factoring in a 4% CAGR in loans over FY22-25, which along with margin expansion and lower credit cost should aid ROE of 17% in FY24.


"The bank may also require raising capital with its Common Tier I CAR at 11% (vs min of 7%), but management may look at stake sales in subsidiaries to mobilise capital first," it said.

Jefferies has SBI among its sector top picks with a "Buy" rating and a target price of Rs 760, representing an upside of 44%. In an upside scenario, the target price is set at Rs 860, with a potential upside of 61%.

SBI posted 68% year-on-year (YoY) growth in net profit at Rs 14,205. This is the highest-ever quarterly profit figure reported by the bank.

Its net interest income (NII), the difference between interest earned and interest expended, rose 24% on year to Rs 38,068.62 crore. Meanwhile, the domestic net interest margin (NIM) for the quarter increased 29 basis points YoY to 3.69%.

The public-sector lender saw provisions for the quarter drop by more than 17% YoY to Rs 5,761 crore. Of this, the provision for non-performing assets was Rs 1,586 crore compared with Rs 3,096 crore a year ago. The bank’s operating profit grew by over 36% on year to Rs 25,219 crore.

Commenting on the third quarter results, Jefferies said that the bank continues to see strong asset quality trends that helped to bring down gross non-performing loans (NPLs) by 18% YoY to 3.1% of loans.

"Like peers, SBI has benefited from a surge in corporate credit demand that has boosted loan growth and upfront repricing of loans. We expect NIMs to peak in the fourth quarter/first quarter and then start normalising downwards," it said.

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