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In its latest note, Motilal Oswal Financial Services Ltd (MOFSL) highlighted State Bank of India (SBI) as a well-positioned entity for sustainable growth with high profitability. MOFSL attributes this positive outlook to SBI’s healthy loan growth, controlled operating expenses, and prudent provisioning.
SBI’s management has provided guidance for broadly stable margins, leveraging factors like the CD ratio and MCLR re-pricing to counteract the elevated cost of deposits. MOFSL emphasized that SBI’s low CD ratio, strong underwriting standards, and the continued momentum of its digital platform, YONO, support the bank’s growth trajectory. The brokerage also noted consistent improvements in SBI’s asset quality performance.
“SBI stands as one of our top picks in the sector. We project a 15% CAGR in net profit from FY24 to FY26, with an expected RoA/RoE of 1.1%/18.5% in FY26. We reiterate our BUY rating with a revised target price of Rs 1,015 (1.5 times FY26E ABV + Rs 235 from subsidiaries),” MOFSL stated.
Over the past few years, SBI has showcased strong all-round performance, achieving new profitability milestones with a PAT surpassing Rs 60,000 crore in FY24. The public sector bank has made significant strides in improving its underwriting standards, consistently strengthening its balance sheet, and reducing NPAs to exemplary levels. MOFSL highlighted that SBI’s market cap has surged to $89 billion, delivering a 34% CAGR in returns over the past two years. Compared to large global banks, SBI has achieved the best-in-class RoE and loan growth.
From FY22 to FY24, SBI outperformed many large peers by delivering a 16% CAGR in loans. MOFSL pointed out that SBI’s current balance sheet size, at Rs 62 lakh crore, exceeds the GDP of nearly 174 countries, a gap expected to widen with continued steady growth.
“SBI has demonstrated remarkable agility and superior execution, even at its substantial size, and is well-poised to maintain this momentum. A robust liability profile, an impressive CD ratio, and advanced tech capabilities position SBI to capitalize on growth opportunities, especially as stable policy environments and ongoing reforms bolster overall economic activity,” MOFSL noted.
MOFSL anticipates SBI to deliver a 16% CAGR in earnings from FY24 to FY26, driven by healthy loan growth, moderated operating expense ratios, and controlled credit costs (35-40bps), resulting in an expected RoA/RoE of 1.1%/18.5% in FY26.
Summary
State Bank of India remains a strong contender in the stock market, bolstered by healthy loan growth, improved asset quality, and robust profitability. MOFSL’s projections and positive outlook further reinforce SBI’s potential for sustained growth and high returns in the finance sector.
