State Bank of India shares fell in early trade on Friday as analysts cut respective target prices after its third quarter earnings. India’s largest lender saw its net profit for the October-December quarter rise 84% year-on-year to Rs 16,891 crore, but concerns remain over its net interest margin.

The profit rise was aided by higher core income during the quarter. Net interest income, or core income, for the bank was up 4% from a year ago and stood at Rs 41,445.5 crore.

State Bank of India’s credit growth stood at 13.49% against the same period last year, while domestic advances rose 14.06%. Credit growth remained robust across all segments, with lending to small and medium enterprises up 18.7%.

The third quarter results highlight “continuity and consistency”, Chairman CS Setty said at the press conference. The impact of trade wars across all countries have yet not materialised, Setty said.

Jefferies Trims Target Price

The third quarter results was ahead of estimates aided by lower credit cost and reversal of standard provisions, Jefferies noted. SBI’s loan and deposit growth were better than sector, but compression in the NIMs is higher, leading to softer growth in NII at 4%.

Jefferies trimmed its target price for SBI to Rs 960 from Rs 970 earlier, but stayed with ‘buy’ rating on the stock.

Notably, over past three quarters, banking sector loan and deposit growth have moderated, but SBI’s loan and deposit growth have moderated better than the sector respectively, Jefferies said.

SBI sustained stable asset quality and low credit cost, even in unsecured loans, the brokerages said. During the quarter, bank also reversed provisions on a large corporate account that boosted profits. The bank has slowed its retail unsecured loan growth to 3%.

Nomura Reiterates NIM Concerns

Nomura maintained ‘buy’ rating on SBI with a revised target price of Rs 1,000 on account of mixed results. Strong loan growth and robust asset quality punctuated the third quarter, as did lower NII soft fee income and higher operating expenses. Lower credit cost led to in-line bottom-line print, but NIM declined primarily due to increased cost of funds and lower yield on advances.

However, the outlook is steady, aided by SBI’s recent 35 basis points increase in one-year, according to the brokerage. Considering SBI’s strong position on account of asset quality, deposit, regulatory and rate-cut related challenges, the brokerage has retained the bank as its top pick.

Macquarie Maintains Underperform

The brokerage maintains underperform with a target price of Rs 700. The brokerage notes based on third quarter results that a lower PPOP was offset by lower credit costs. The NIM guidance was 30 basis points lower at 3%. The credit costs decline driven by provision write-back was noted by the brokerage as all eyes continue to be set on the margin trajectory.

Morgan Stanley Remains Equal Weight

Morgan Stanley maintained ‘equalweight’ with a target price of Rs 865 as the third quarter saw strong asset quality offset margin miss. While asset quality remained strong, core pre-provision operating profit margin progression remained under pressure.

NIMs declined by 13 basis points sequentially and drove 3% NII miss. According to the brokerage, the credit growth remained strong at 14% year on year, and continues to grow faster than deposits given better starting point of liquidity.

SBI Share Price

SBI stock was down 1.46% during the day at Rs 741.30 apiece on the NSE, coming off the day’s low of Rs 733.40. Meanwhile, benchmark Nifty 50 was 0.15% down as of 10:52 a.m.

It has risen 9.77% in the last 12 months. The relative strength index was at 43.35.

Thirty nine out of the 49 analysts tracking the bank have a ‘buy’ rating on the stock, six recommend a ‘hold’ and four suggest a ‘sell’, according to Bloomberg data. The 12-month analysts’ consensus target price on the stock is Rs 939, implying a upside of 23.6%.

. Read more on Business by NDTV Profit.Jefferies, Nomura, Macquarie and Morgan Stanley pointed out concerns over SBI’s net interest margins despite robust asset quality and in-line profit rise.  Read MoreBusiness, Markets, Notifications 

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