SBI Share Price: Motilal Oswal Recommends Buy In India's Largest PSU Bank, Sets RS 860 Target

Brokerage Motilal Oswal recommended BUY on India's largest public sector bank, State Bank of India (SBI) as it believes that the lender's earnings are expected to gain pace in the financial year 2024-25 after operating expenses blip. Motilal says that SBI's balance sheet continues to be pristine, while its RoA is expected to improve to 1.2% by FY26E. The brokerage has set a Rs 860 apiece target on SBI, indicating a 14% potential upside ahead.

On BSE, SBI's share price ended at Rs 754.75 apiece, down by 0.90% with a market cap of Rs 6,73,585.09 crore. SBI is not only the largest PSU bank but also the biggest government-backed company in terms of market share.

In its latest research note, analysts at Motilal said, "We expect limited impact on growth from recent regulations on risk weight, as its loan book is broad-based. On the unsecured loan book (Xpress credit), growth has already moderated to 16% YoY from 25% earlier. Wholesale books have witnessed some recovery, led by improved demand and utilization levels, even as the bank continues to focus on a high-quality portfolio. SBIN also aims to scale up its corporate book as it has a healthy credit pipeline of INR4.6t, which should fuel further growth in the corporate segment."

Further, Motilal's note added, "We expect a healthy ~11% CAGR in deposits over FY24-26, while the bank maintains its focus on garnering granular retail deposits. The bank is also favorably positioned amid the current tight liquidity environment, with a domestic credit-deposit ratio at ~66%, significantly below most peers."

In its balance sheet, SBI has been steadily growing its deposit base, up 13% YoY to INR47.6t in 9MFY24. Despite high rates being offered by competition, the management does not foresee any challenges in garnering deposits, even at such a large base. SBIN maintains its leadership in liability, with a deposit market share of ~24% in 9MFY24, as per the brokerage.

In case of futher hikes in lending rates, Motilal highlighted that SBI does not expect any further increase in deposit rates but believes that rates may remain elevated for a longer period. SBIN expects NIMs to be broadly stable, with a slight downward bias. Its CD ratio remains relatively lower than peers', and further deployment of excess liquidity should support margins.

Motilal, thus, estimates a ~12% CAGR in NII over FY24-26.

Moreover, Motilal expects SBI's cost ratios to moderate significantly in FY25 to 51% and further to ~50% by FY26 from 58% in FY24. Further, its focus on digital and technology with a gradual ramp-up in digital lending via YONO will boost operational efficiencies and result in a moderation in cost ratios.

Also, the SMA-1&2 pool has also declined to INR41.3b (12bp of loans) and provides comfort on the incremental slippage trend. The bank has conservatively guided for a controlled credit cost at

Hence, on valuation, Motilal's note added, "SBIN has delivered a strong performance in recent years, propelled by steady business/revenue growth and controlled provisions. Opex has been elevated due to high wage/pension provisions affecting PPoP growth; however, we expect earnings to gain traction from FY25 onwards after this opex blip. NIMs have declined in recent quarters and the management has guided for broadly stable margins going forward as the bank has levers in place (CD ratio, MCLR re-pricing) to mitigate the impact of the rising cost of deposits."

Additionally, Motilal believes that SBI's asset quality performance remains strong with consistent improvements in headline asset quality ratios, while the restructured SMA books remain under control at 0.5% and 12bp of loans, respectively.

Finally, Motilal added, "We estimate credit costs to remain in control at 35-40bp, enabling a 22% earnings CAGR over FY24-26E. We, thus, estimate SBIN to deliver RoA/RoE of ~1.1%/19-20% over FY25-26. SBIN remains our preferred BUY in the sector with a TP of INR860 (1.2x FY26E ABV + INR244 from subs)."

In Q3FY24, SBI registered PAT of Rs 9,164 crore, down by 35.49% YoY and 36.05% QoQ. While net interest income (NII) stood at Rs 39,816 crore, up marginally by 4.59% YoY and 0.80% QoQ. In the quarter, Credit grew at 14.38% YoY with Domestic Advances growing by 14.47% YoY, while Whole Bank Deposits grew at 13.02% YoY, out of which CASA Deposits grew by 4.48% YoY. CASA ratio stands at 41.18% as of 31st December 23.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.