Unless you are averse, buying PSU stocks seems like a no-brainer, says Emkay
BSE PSU index has soared over 97 percent in the last 1 year and over 22 percent in 2024 YTD. Just in Feb, the index has advanced 10 percent, extending gains for the fourth straight session. Before this, it rose 11.2 percent in January 2024, 15.3 percent in December 2023 and 10.3 percent in November 2023.
The index hit its record high of 19,085.60 in the previous session, February 16, surging over 107 percent from its 52-week low of 9,196.42, hit March 2023. The brokerage highlighted that over the last three years, the compound annual growth rate (CAGR) for loans in top PSU banks has averaged around 13.5%. SBI is projected to achieve an approximately 18% return on equity (ROE) in FY24, with an average forecast of 17.9% for FY25/26.
Excluding SBI, other major PSUs are expected to achieve an average ROE of 14.9% for FY24, with forecasts of 15.5% and 15.7% for FY25 and FY26, respectively. SBI's earnings per share (EPS) CAGR through FY26 is estimated at about 15%, while other banks may report a wider range, from 8% to 45%. However, it's noted that sustainable growth rates for PSU banks are expected to be lower than their reported ROEs.
Additionally, excluding SBI, the average gross non-performing assets (GNPA) reported is around 4.7%, with net non-performing assets (NNPAs) averaging around 1% and a provision cover of 79%. Many banks anticipate sustainable recoveries following an extended period of non-performing assets. Despite the recent rally, SBI trades at 1.5x trailing twelve months (TTM) book value and approximately 1.4x FY25 adjusted book value (ABV).
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