SBI and Welspun Corp: Weekly Recommendations

The two stocks recommended by SMC Global Securities’ Research Team this week are SBI and Welspun Corp. These two stocks have shown great potential with positive financial estimates for the next two financial years. So, let’s go through the details of the two stock recommendations for the period between December 16, 2024 and December 20, 2024.

State Bank of India

SBI share price was at ₹861.70 (as on December 13, 2024) and its target price is set at ₹999 with an upside potential of 16%.

State Bank of India: Investment Rationale

• The business of the bank has increased 12% YoY to ₹90,38,004 crores end September 2024, driven by a 15% surge in advances to ₹39,20,719 crores. Deposits rose 9% to ₹51,17,285 crores at end September 2024.
• Advances growth was driven by retail loans rising 12% YoY to ₹13,96,624 crores at end September 2024, while credit to agriculture increased 18% to ₹3,22,247 crores and MSME 17% to ₹4,56,491 crores at end September 2024.
• The corporate credit has also jumped 18% to ₹11,57,171 crores end September 2024. The overseas credit has risen 12% to ₹5,88,185 crores end September 2024. According to the management of the company, its corporate loan book growth is expected to remain in strong double digits driven by a strong sanctions pipeline and an increase in working capital utilization.
• Net interest income rose 5.37% YoY to ₹41,620 crores in September 2024 quarter. Net interest margin (domestic) reduced by 16 bps to 3.27% in Q2 FY25 as against 3.43% in Q2 FY24.

• The bank has continued to improve asset quality in Q2FY2025. The ratio of gross NPAs to gross advances stood at 2.13% as on September 2024 as against 2.55% as on September 2023. The ratio of net NPAs to net advances stood at 0.53% as on 30 September 2024 as against 0.64% as on 30 September 2023.
• The bank remains well-capitalized and has sufficient headroom to take care of business growth requirements. Capital Adequacy Ratio (CAR) as at the end of Q2 FY25 reduced by 52 bps YoY and stands at 13.76%, slippage ratio was at 0.51%, up by 5 bps YoY while credit cost rose 16 bps to 0.38%.
• The provision coverage ratio increased to 92.21% at end September 2024 compared to 91.76% a quarter ago and 91.93% a year ago.
• The bank’s Return on Assets (ROA) for the quarter stood at 1.17% as against 1.01% in Q2 FY24.
• More than 8 crore customers have been registered on YONO driving the digital agenda of the bank. About 61% of regular savings bank accounts are opened through YONO in Q2FY25.

State Bank of India: Shareholding Pattern

Promoter’s shareholding is highest in the State Bank of India at 56.92%.

State Bank of India: Valuation

The bank has delivered significant growth in business and improvement in assets quality and Q2FY25, results of the bank highlight continuity, consistency, and significant long-term strengths. The bank has remained focused on strengthening the key components that contribute to sustainable value.

It has prioritized liability franchises and the refined processes continue to improve underwriting standards. Thus, it is expected that the stock may see a price target of ₹999 in 8 to 10 months’ time frame on a 3-year average P/BV of 1.81x and FY26 (E) BVPS of ₹551.78.

State Bank of India: Risk

• Economic slowdown
• Deterioration in asset quality

Welspun Corp Limited

Welspun Corp share price was at ₹784.90 (as on December 13, 2024) and its target price is set at ₹895 with an upside potential of 14%.

Welspun Corp Limited: Investment Rationale

• Welspun Corp Ltd., a part of the $5 Bn Welspun World, with forays in Pipe Solutions and Building Materials, has undertaken some of the most challenging projects around the world, namely, the world’s deepest pipeline, the world’s heaviest pipeline, and the world’s longest pipeline, among others.
• WCL has forayed into a state-of-the-art Greenfield facility at Anjar, Gujarat to manufacture Ductile Iron (DI) Pipes with a total production capacity of 5,00,000 MT per annum.
• It has a strong order book of ₹12,673 crores. The total order book for the line pipes in India and the U.S. remains strong, almost close to 704 KMT amounting to ₹9,500 crores. Its DI pipe order book remains extremely strong at close to more than 356 KMT providing a clear visibility from the next 3 quarters. The stainless steel and the pipe order book stands at 5,800 MT.

• According to the management, the company has become the first Indian pipe mill to produce an API grade X65 ERW pipe for transporting hydrogen. This is an important achievement for future business growth opportunities and sustainability as the market is moving towards carbon capture and hydrogen pipelines.
• The company sees very robust demand for almost 2.7 million tonnes of line price projects in the next 2 to 3 years with major demand coming from large PSUs like GAIL, IOCL, ONGC, HPCL, and BPCL.
• The company expects huge traction coming up of this oil and gas pipeline network, which will be created in the country. Besides, it sees strong potential in the export market, especially in the Southeast Asian market, the Australasian market, the Latin American market, and the Middle East market.
• The company expects strong demand from the U.S. market as it has an order book until quarter 3 of FY ’25 for this financial year. It is favorably placed to book some new orders and that will ensure business continuity beyond 2024 as well.
• U.S. crude oil production is likely to go up to 14.5 million barrels per day in calendar year 2030 with Permian production expected to increase from the current 5.2 million barrels to 7.5 million. Recently it won two large orders each for the supply of HSAW-coated pipes for Natural Gas Pipeline Projects in the US. With this, the cumulative order of the company’s USA plant exceeds ₹7,000 crores.
• Its Saudi associate company, EPIC, has an order book of more than 2.5 years that comprises both water and oil and gas segments. The company expects strong demand for pipelines for the next 5 to 7 years backed by both oil and gas and water under Vision 2030 of the Kingdom of Saudi Arabia.

Welspun Corp Limited: Shareholding Pattern

In the overall shareholding of Welspun Corp Limited, promoters have the highest shareholding of 50.01%.

Welspun Corp Limited: Valuation

The company has an order book and robust order pipeline backed by ramping up oil and gas production in the U.S., India, and Saudi. Its acquisition of Sintex, the water tanks and home building products manufacturer is part of its diversification strategy, and its capex plan of ₹2,500 crores to expand Sintex’s offerings in the pipes and building materials business augers well for the company.

Thus, it is expected that the stock may see a price target of ₹895 in 8 to 10 months’ time frame on a one year average P/BV of 3.01x and FY26 BVPS of ₹297.30.

Welspun Corp Limited: Risk

• High commodity prices
• Economic slowdown

Conclusion

These two stocks SBI and Welspun Corp, one from the banking sector and the other from the iron and steel sector can reach their target price in the coming 8 to 10 months. But it is always better if you do your analysis before investing and set a stop loss target. To keep track of your invested stocks, open demat account with SMC Global Securities and invest on the go.

Reference:
https://www.smctradeonline.com/research/wise-money/241

Author: All Content is verified by SMC Global Securities.