Buy State Bank of India Ltd For Target Rs.1,135 By Axis Securities Ltd
Recommendation Rationale
* Growth Buoyancy to Continue: SBI’s strong credit growth momentum is expected to sustain, driven by robust performance in (a) home loans (projected at 15-16% growth), (b) revival in Xpress Credit, and (c) improving growth traction in the corporate segment. The bank has visibility of meaningful acceleration in corporate growth, supported by a strong sanction pipeline of Rs 7.0 Tn, of which ~50% has already been sanctioned and is awaiting disbursement. The Xpress Credit segment has been a laggard, delivering muted growth. Some cannibalisation has been observed from the Xpress Credit book towards the gold loan portfolio, driven by lower rates and favourable gold prices. With strong growth visibility across segments, the management is confident of growing faster than the industry and has guided for credit growth of 12-14% for FY26 and endeavours to 2x the balance sheet every 6 years. We pencil-in healthy credit growth sustaining at ~13% CAGR over FY26-28E.
* Confident on Maintaining Domestic NIMs at 3%: In Q2, SBI’s Domestic/Global NIMs expanded by 7bps QoQ each driven by effective liability management. The bank is taking conscious steps towards optimizing the CoF with reducing reliance on bulk deposits and focused efforts towards CASA mobilisation. The management expects tailwinds on NIMs in the form of CRR cut (benefit to flow through by Nov-end) and continued repricing of TDs to adequately offset the impact of MCLR repricing. Thus margins have bottomed out and should move with a positive bias over H2.
* Comfortable RoA Delivery of 1%: SBI’s performance has been the best amongst the larger banks and the bank remains well-poised to sustain its performance supported by the management’s focus on deepening liability franchise, allocating capital to higher RoRWA assets, maintaining a disciplined pricing approach and leveraging tech to drive operating efficiency. The bank is making concentrated efforts to contain Opex growth by focusing on improving productivity and maintaining C-I Ratio at <50% across cycles. Asset quality does not seem concerning at present and thus credit costs should stay under control. We expect consistent RoA/RoE delivery of 1-1.1%/14-16% over FY26-28E. The bank is also actively evaluating the listing of SBI MF and SBI GI..
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SEBI Registration number is INZ000161633
