PSU banks: Kotak Equities raises SBI share price target, downgrades Canara Bank and PNB
₹850 from ₹760 earlier, implying an upside of more than 14% from its previous close. Analysts at Kotak Institutional Equities do not see a specific tailwind that can cause a re-rating for SBI shares in the short term. However, they expect SBI to outperform other public sector banks, given the sharp convergence in multiples.
“We are valuing SBI at 1.4x book and 10x earnings for return on equity (RoE) at ~15%," Kotak Institutional Equities said in a report. On its outperformance with other public banks, Kotak analysts said the premium at which SBI is currently trading to Bank of Baroda and with other mid-tier public banks has declined sharply and is closer to the best of times. Also Read: Wipro shares trading at expensive valuation, offer little margin of safety, says Kotak Equities; downgrades to ‘Sell’ On the other hand, SBI’s discount with HDFC Bank has narrowed sharply as well.
The outperformance with private banks might be slower, but analysts believe that there is headroom as well. “We are building in a call that the extent of the differential in return ratios, loan growth, NIM and credit costs is not likely to be too different in the medium term, until we have clear evidence of weak underwriting from these players. Until then, relative performance is likely to have a higher weightage in stock ideas," the analysts added.
Among PSU banks, they believe SBI has done well to defend its market share on liabilities, while its underwriting has been better-than-expected. In a separate report, Kotak Equities said that the valuations of other PSU banks were steadily turning less attractive. Also Read: Maruti Suzuki shares: JM Financial raises target price as trend seems shifting to hybrid vehicles amid EV deceleration “Tier-2
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