JP Morgan maintains `Neutral’ rating on SBI
JP Morgan reiterates the cautious view on SBI and maintains `Neutral’ rating with March 11 price target of Rs 2,300
By ET Bureau |
RESEARCH: JP MORGAN
RATING: NEUTRAL
CMP: RS 2058
JP Morgan reiterates the cautious view on SBI and maintains `Neutral’ rating with March 11 price target of Rs 2,300 for SBI assumes a terminal growth rate of 8%, cost of equity of 14.2%, and an RoE of 16%, implying a P/B of 1.5x FY11E. SBI reported Q3 net profit at Rs 2,480 crore, broadly in line with expectations.
Though margin improvement was better than expected, increase in NPAs and increase in duration risk are overhangs on SBI’s earnings. SBI’s margins have normalised at 2.8% after dipping to 2.3% in the June quarter.
SBI, in order to increase yield on investment, has shifted its investment book to longer duration bonds v/s T bills, adding to the duration risk in an environment in which the yield curve is to flatten and bond yields are to increase over the next three-six months.
Though the government’s participation still remains a question mark, a rights issue would impact medium-term RoE improvement.
RATING: NEUTRAL
CMP: RS 2058
JP Morgan reiterates the cautious view on SBI and maintains `Neutral’ rating with March 11 price target of Rs 2,300 for SBI assumes a terminal growth rate of 8%, cost of equity of 14.2%, and an RoE of 16%, implying a P/B of 1.5x FY11E. SBI reported Q3 net profit at Rs 2,480 crore, broadly in line with expectations.
Though margin improvement was better than expected, increase in NPAs and increase in duration risk are overhangs on SBI’s earnings. SBI’s margins have normalised at 2.8% after dipping to 2.3% in the June quarter.
SBI, in order to increase yield on investment, has shifted its investment book to longer duration bonds v/s T bills, adding to the duration risk in an environment in which the yield curve is to flatten and bond yields are to increase over the next three-six months.
Though the government’s participation still remains a question mark, a rights issue would impact medium-term RoE improvement.
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