State Bank of India (NS:SBI) is poised to announce its first-quarter earnings for FY25 on August 3, and analysts are predicting a mixed bag of results. The consensus among brokerage firms suggests that SBI will report a flat year-on-year (YoY) net profit of around INR 17,000 crore. However, estimates vary, with the most optimistic projection seeing a 1.8% YoY increase and the most pessimistic expecting a 0.2% decline.
The bank’s net interest income (NII) is expected to grow by 9.53% YoY to INR 42,614 crore, driven by a robust 14% YoY loan growth. Despite this, net interest margins (NIM) are likely to decline by around 10 basis points quarter-on-quarter (QoQ) due to rising slippages and higher funding costs.
Credit growth remains a positive factor, with strong performance anticipated for the quarter. However, the impact of rate hikes is expected to soften margins. There is also the potential for increased slippages, which could further pressurize NIM. Investors will closely watch several key metrics in SBI's earnings report, including NIM, return on equity, unsecured loans, and the capital adequacy ratio (CAR). These indicators will provide insight into the bank's profitability and financial health amid a challenging economic environment.
Despite a predicted modest 1.5% YoY profit growth, analysts forecast a significant 17.2% QoQ decline, mainly due to treasury income fluctuations. Analysts predict SBI's deposit growth will trail the industry average at 10.6% YoY and 1.8% QoQ. Conversely, loan growth is expected to be strong, at 17% YoY and 2.5% QoQ.
Operating expenses are expected to be high, impacting overall profitability. Seasonal factors may lead to increased slippages, particularly in the agricultural portfolio, with analysts forecasting slippages to rise to around INR 8,500 crore from INR 3,964 crore in the previous quarter. Despite these challenges, SBI's asset quality is expected to remain stable, with the gross non-performing asset (NPA) ratio likely holding steady at 2.2% and the net NPA ratio improving slightly to 0.5%.
SBI’s management commentary will be crucial to listen to, particularly regarding growth strategies, the outlook for unsecured loans, and the trajectory of net interest margins. While SBI is expected to report flat net profit growth for Q1 FY25, strong credit growth and a stable asset quality outlook provide some optimism.
The bank is still undervalued by a decent 15.2%, as its fair value comes at INR 976.7, making it a good value proposition for investors. In fact, the average analyst’s target of INR 912.8 is also higher than the CMP of INR 847.8. InvestingPro users have access to such complex valuations at their fingertips which keeps them ahead of the market. Such fundamental value helps in timely entry and exit from positions.
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