BackSBI Securities recommends this small finance bank stock, sees 20% upside potential
Brokerage firm SBI Securities has recommended Suryoday Small Finance Bank stock to buy with a target price of ₹227.8. The brokerage sees an upside potential of over 20 per cent.
PremiumMost small finance banks (SFBs) demonstrated strength in the stock market in April, thanks to their business updates for the March quarter that revealed double-digit growth in both advances and deposits.
Brokerage firm SBI Securities has recommended Suryoday Small Finance Bank to buy with a target price of ₹227.8. The brokerage sees an upside potential of over 20 per cent in the SFB stock.
Suryoday Micro Finance Limited was set up to provide loans to women in urban and semi-urban areas using the joint liability group (JLG) lending model. It commenced operations as a small finance bank in January 2017. As of December 2023, the bank operated in 15 states and Union Territories (UTs) across India through its 672 branches, with a strong presence in Maharashtra, Tamil Nadu and Odisha. Suryoday catered to 26.3 lakh clients while managing a portfolio of ₹7,600 crore as of December 2023.
Suryoday Small Finance Bank stock has gained nearly 16.55 per cent in the last one month and 18.91 per cent in the last six months.
The brokerage firm further stated four reasons why one should invest in Suryoday Micro Finance stock:
Suryoday has been scaling up operations in other segments
The bank has gradually diversified its product mix. Its advances stood at Rs. 7,600 crore as of December 2023 v/s ₹5,408 crore as of December 2022 registering a growth of 41 per cent YoY, with a gradually decreasing share of the microfinance portfolio. However, the proportion of microfinance loans in the bank’s portfolio remains high at 58 per cent as of December 2023 (61 per cent as of March 2023; 67 per cent as of March 2022). The bank has been scaling up its share in newer products, including commercial vehicles, Small and Medium Enterprises (MSMEs), housing loans, financial intermediary groups and others. The secured book contributes 50 per cent of the portfolio as of December 2023.
Improvement in CASA deposits along with increased share of retail deposits
Suryoday has been building a stable retail deposit franchise. Total deposits stood at ₹6,484 crore, up by 38 per cent YoY with total retail deposit share at 82.5 per cent in 3QFY24 vs 78 per cent in 2QFY24. Though the share of CASA remains relatively low at 19 per cent as of December 2023 (14 per cent as of December 2022), it has witnessed 500 bps improvement on a YoY basis. It further plans to increase the share of CASA which will be supportive for NIM expansion going ahead.
Asset Quality is expected to improve going forward
As of December 2023, the GNPA improved to 2.9 per cent from 4.2 per cent as of December 2022 due to write-offs/sales to asset reconstruction companies (ARC), recoveries & upgrades and a decline in slippages. The bank has witnessed improvement in the PCR level to 54 per cent as of December 2023 v/s 36 per cent YoY.
LCR has remained healthy
The liquidity coverage ratio (LCR) was healthy at 150 per cent for the quarter ended December 2023 (v/s 130 per cent for the quarter ended March 2023) on a daily average basis for the respective quarters.
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