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Strong all-round quarter

SBIN reported strong results, with PAT at INR 207bn (+24.0% QoQ/+125.9% YoY), 41.6% ahead of JMFe of INR 146.9bn. Strong performance was led by benign employee costs, as no exceptional costs were booked in the quarter on account of wage revision, after INR 71bn in 3Q24. Performance, other than opex, was also strong. Loan book grew +5.1% QoQ/+15.2% YoY to INR 37.7trln. Deposit growth trailed advances growth at +3.2% QoQ/11.1% YoY, so, CD ratio increased to 75.3%. NII grew +3.1% YoY/+4.6% QoQ to INR 416.6bn, with reported NIMs QoQ flat at 3.28%. We expect NIMs to remain flattish over FY25/FY26, as deposit repricing is largely behind us. Fee income grew 39.8% QoQ/+9.0% YoY in a seasonally strong 4Q, to INR 87.2bn. Gross slippages came down by 21% sequentially to INR 39.8bn. SBI ended FY24 with a superlative 21bps of credit costs. While we do not see any visible stress on its book, we expect credit costs to normalise by rising 5bps sequentially in FY25 and FY26. CET1 ratio of 10.4%, with an 18.0% RoE can easily sustain 15% loan growth in a benign credit cost scenario. We see the bank improve its RoA by 10bps to 1.15% by FY26e. We believe healthy growth momentum, room to expand CD-ratio further (versus private bank peers) and a favourable macro environment could lead to SBI trading at a premium to its recent past. We value SBI’s core banking business at 1.5x FY26e P/BV to arrive at our Target Price of INR 1,050. Maintain BUY.

* Strong growth in advances, backed by sustained CASA: Gross advances grew +5.1% QoQ/+15.2% YoY to INR 37.7trln. Growth in 4Q was led by corporate business, which grew +8.9% QoQ to INR 15.7trln. Corporate business accounts for 41.7% of SBI’s gross advances. Management articulated that growth in the segment will remain strong as most large private banks are not active in large corporate business. Retail and agri segments collectively grew 4.4%. Auto loans grew 3.0% QoQ after a seasonally strong 3Q, while agri and other retail segments grew in 4.2%-4.6% range. Deposit growth lagged advances growth at +3.2% QoQ/11.1% YoY. With a domestic CD ratio of 68.3%, the bank is comfortably placed. CASA comprised 41.1% of domestic deposits, flattish sequentially (-10bps QoQ). SBI has grown advances by 16.0%/15.2% in FY23/FY24, and we expect it to maintain the 15.0% growth run-rate over FY24-FY26

* Strong all-round operating performance: NII grew +3.1% YoY/+4.6% QoQ to INR 416.6bn, with reported NIMs QoQ flat at 3.28%. We expect NIMs to remain flattish over FY25/FY26, as deposit repricing is largely behind us. Fee income grew 39.8% QoQ/+9.0% YoY in a seasonally strong 4Q, to INR 87.2bn. Opex was a positive surprise at -2.1% QoQ/+1.8% YoY, as higher overheads were compensated by lower employee costs (-15.6% QoQ/-7.2% YoY). Cost-income Ratio contracted to 51.3%, from 61.3% QoQ. With wage revision behind us, we expect opex to grow at a sub-10% CAGR over FY24-FY26e.

* Strong asset quality: SBI’s strong show in asset quality continued as gross slippages came down by 21% sequentially to INR 39.8bn. SBI ended FY24 with a superlative 21bps of credit costs. While we do not see any visible stress on its book, we expect credit costs to normalise by rising 5bps sequentially in FY25 and FY26, as lumpy recoveries in legacy accounts look to be behind us.

* Subsidiaries’ performance: Insurance subsidiaries of SBI showed strong performance in FY24. While SBI Life grew APE (Adjusted Premiums Equivalent) / VNB (Value of New Business) by 17.3%/9.5% YoY, reporting VNB of INR 55.5bn. SBI General grew premiums/profits by 16%/30%, reporting profits of INR 2.4bn. In a strong year for equity markets, SBI Funds Management grew PAT by 55% to INR 20.6bn. Our valuation of the subsidiaries is provided in Exhibit 1.

* Valuation and view: SBI’s core fundamentals continue to be stable while delivery on the growth front along with sustained margins and controlled credit costs should drive further re-rating of the stock. In FY24, SBI reported strong RoA/RoE of 1.05%/18.0%. A CET1 ratio of 10.4%, with an 18.0% RoE can easily sustain 15% loan growth in a benign credit cost scenario. We see the company improving its CET1 further through plough back of profits. This, supported by flat NIMs and a sub-10% opex growth, should support improvement in ROAs by 10bps over FY24-FY26e. We believe healthy growth momentum, room to expand CD-ratio further (versus private bank peers) and a favourable macro environment could lead to SBI trading at a premium to its recent past. We value SBI’s core banking business at 1.5x FY26e P/BV to arrive at our Target Price of INR 1,050. Maintain BUY.

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