Buy State Bank of India Ltd For Target Rs. 950 By JM Financial Services
SBIN reported a steady 1QFY26 with PAT growth of +12%/+3% YoY/QoQ, ~15% higher than JMFe, driving RoA/RoE to ~1.1%/17%. Loan growth remained stable at +12% YoY, led by home/international segments. NII declined -4% QoQ (-3% vs JMFe) due to a 16bps QoQ decline in NIM (calc.) to 2.65%. However, higher/lower than expected core fee/opex led to strong core PPOP growth (+13% QoQ, 9% above JMFe). Asset quality remained stable with decline in gross/net slippages and stable SMA book on YoY basis. Credit cost declined ~18bps QoQ to ~46bps. Management retained its FY26 guidance of 12% credit growth, 3.0% domestic NIM (vs. 3.2% in FY25) and slippages below 0.6%. At 0.9x FY27E Adj. BVPS, valuations remain inexpensive. We build avg. ROA/ROE of 1%/14% during FY26/27E and revise our FY26/FY27E EPS estimates by ~2%-3%. Our revised SoTP-based TP stands at INR 950, valuing the core bank at 1.1x FY27E Adj. BVPS. Maintain BUY.
* Steady loan growth momentum; guidance retained: Loan growth remained stable at +12%/+1% YoY/QoQ (INR 42tn), supported by sequential uptick in the retail and international segments (+2%/+3% QoQ), even as agri growth was muted and corporate loans moderated to +9.5%/-1% YoY/QoQ. Domestic deposits rose +12%/+2% YoY/QoQ, led by term deposits (+14%/+3%), while CASA growth was muted at +8%/flat YoY/QoQ, leading to a decline in CASA ratio to 39% (vs 40% QoQ). Domestic/overall CD ratio stood at 68.9%/76.7%. Management retained its FY26 credit growth guidance at 12% and expects momentum to pick up from 2QFY26. It expects Xpress Credit to grow in double digits despite near-term softness, while corporate loans are guided to grow at 10–11% YoY. We build in a loan CAGR of 13% over FY25–FY27E.
* Moderating opex leads to beat in operating profit: SBIN reported a 16bps QoQ decline in calculated NIM to 2.65% in 1QFY26 (vs 2.81% QoQ), driven by a 25bps drop in yields on IEA, partially offset by a 9bps decline in CoF. As a result, NII came in at INR 410.7bn (flat YoY, -4% QoQ, -3% vs JMFe). Opex moderated to INR 279bn (+8%/-22% YoY/QoQ), leading to an 11% beat in operating profit and improvement in the cost-to-income ratio to 48%. Management targets C/I ratio to be <50% going forward and reiterated that domestic NIM trajectory will likely follow a U-shape in FY26, with further pressure in Q2 and recovery expected from Q3 onwards. It maintained a domestic NIM guidance of 3.0%. We model average calculated NIM of 2.6% over FY26–FY27E.
* Asset quality largely stable: Asset quality remained stable with GNPA/NNPA at 1.8%/0.5% QoQ. Gross slippage ratio rose to 81bps (+38bps QoQ, -14bps YoY), though higher recoveries of INR 33bn (vs INR 17.4bn QoQ) helped contain net slippages at 50bps (+24bps QoQ). Total provisions declined to INR 47.6bn (vs INR 64.4bn QoQ), translating into a lower credit cost of 0.5% (down ~18bps QoQ). Of the total slippages of INR 79bn, SME/Agri/Personal loans (Xpress Credit) contributed INR 26.8bn/24.6bn/26bn, respectively, with INR 15.9bn already pulled back. Management guided for full-year slippages below 0.6% and reiterated its outlook of delivering RoA >1% and RoE >15% in FY26. We build in an average credit cost of 43bps over FY26–FY27E.
* Subsidiaries show mixed performance: SBI Life reported healthy VNB growth of +12% YoY in 1QFY26, with individual rated premium rising +6% YoY to INR 35bn and VNB margins steady at 27.4%. SBI Cards saw a modest PAT decline of ~7% YoY, though cards-in-force grew +10% YoY. Among unlisted entities, SBI General Insurance delivered strong performance with PAT of INR 1.9bn (vs INR 1.8bn YoY), while SBI MF reported robust PAT growth of +24% YoY to INR 8.45bn. SBI Capital, however, reported a PAT of INR 1.8bn, down -13% YoY.
* Valuation and view: The core bank currently trades at 0.9x FY27E Adj. BVPS. While profitability may remain under pressure in FY26 due to margin compression, we expect lower cost-to-income ratio and controlled credit costs to support RoA/RoE at ~1%/14%. We revise our FY26/FY27E EPS estimates by +2%/+3% and value the core bank at 1.1x FY27E Adj. BVPS. Our revised SoTP-based TP stands at INR 950, including INR 260 for subsidiaries. Maintain BUY.
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SEBI Registration Number is INM000010361
