SBI Securities Recommends Buying Suryoday Small Finance Bank Stock with 20% Potential Upside

In April, small finance banks (SFBs) showed strength in the stock market, driven by positive business updates for the March quarter, which highlighted double-digit growth in both advances and deposits.

SBI Securities, a brokerage firm, has recommended buying Suryoday Small Finance Bank stock with a ‘buy’ rating and a target price of ₹227.8, indicating a potential upside of over 20%.

Suryoday Micro Finance Limited was established to provide loans to women in urban and semi-urban areas using the joint liability group (JLG) lending model. It transitioned into a small finance bank in January 2017. As of December 2023, the bank operated in 15 states and Union Territories (UTs) across India through 672 branches, with a strong presence in Maharashtra, Tamil Nadu, and Odisha. Suryoday served 26.3 lakh clients while managing a portfolio of ₹7,600 crore as of December 2023.

The stock of Suryoday Small Finance Bank has seen an increase of nearly 16.55% in the last month and 18.91% in the last six months.

SBI Securities outlined four reasons to invest in Suryoday Micro Finance stock:

1. Scaling up operations in other segments: Suryoday has been diversifying its product mix, with advances reaching ₹7,600 crore as of December 2023, up 41% YoY. While microfinance loans still dominate the portfolio at 58%, the bank has been expanding into newer products like commercial vehicles, Small and Medium Enterprises (MSMEs), housing loans, and financial intermediary groups. Secured loans now make up 50% of the portfolio.
2. Improvement in CASA deposits and increased retail deposit share: Suryoday has been strengthening its retail deposit base, with total deposits reaching ₹6,484 crore, up 38% YoY. Retail deposits now account for 82.5% of the total, with the CASA share witnessing a 500 bps improvement YoY to 19% as of December 2023. The bank plans to further increase the CASA share, which will support net interest margin (NIM) expansion.
3. Expected improvement in asset quality: The gross non-performing assets (GNPA) ratio improved to 2.9% from 4.2% YoY as of December 2023, mainly due to write-offs/sales to asset reconstruction companies (ARCs), recoveries & upgrades, and a decline in slippages. The bank’s provision coverage ratio (PCR) also improved to 54% as of December 2023.
4. Healthy liquidity coverage ratio (LCR): The liquidity coverage ratio stood at 150% for the quarter ended December 2023, up from 130% in the previous quarter, indicating robust liquidity position.

Overall, SBI Securities sees potential for growth and improvement in various aspects of Suryoday Small Finance Bank, making it an attractive investment opportunity.