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Opex control a key lever for earnings

Quick Poianters:

* Core PPoP beat due to higher fees/TWO recovery; asset quality was soft.

* For FY26/27E, we raise NII/NIM which would be offset by more provisions.

SBI saw a decent quarter; while core PPoP beat PLe by 11.3% due to better fees and TWO recoveries, asset quality was soft as provisions were higher at 66bps (PLe 25bps) since (1) write-offs/ageing provisions were more and (2) strong TWO recovery and SR reversal (Rs39bn) provided leeway to front load credit costs. Credit growth is guided to be above system in FY26E; we are factoring a 12% CAGR over FY25-27E. Opex for FY25 was flat at Rs1.18trn due to 9.7% decline in staff cost. For FY26, bank has guided a cost to income of 50-51% with staff cost increase of 6%. We are factoring a higher cost to income at ~54% as salary provisions could be more, following rate cuts. With core RoA of 0.9x in FY27, stock is trading at 1.0x. We keep multiple at 1.3x but raise SOTP-based TP to Rs960 from Rs900 as we roll forward to Mar’27 core ABV. Retain ‘BUY’.

* Core PPoP beat due to fees/TWO recovery; drag on provisions: NII was a beat at Rs427.7bn (PLe Rs424bn) as NIM was a beat at 2.88% (PLe2.80%); reported NIM was stable QoQ at 3.0%. Loan growth was 12.4% YoY (PLe 13%). Deposit accretion was lower at 9.5% YoY (PLe 10.6%). LDR increased QoQ to 77.4% from 76.6%; CASA ratio was 38.4% (37.6% in Q3’25). Other income was higher at Rs242.1bn (PLe Rs127.6bn) due to better fees (led by CEB and forex), capital gains, and TWO recovery. Opex at Rs357bn was 10.4% above PLe led by higher other opex/staff cost. Core PPoP at Rs244.1bn was 11.3% above PLe; PPoP was Rs312.9bn. Asset quality was soft; GNPA fell by 25bps QoQ to 1.82% (PLe 1.96%) due to higher write-offs while net slippages were more; provisions were a drag at Rs64.4bn (PLe Rs25bn). Core PAT was 6.2% below PLe at Rs134.8bn and PAT was Rs186.4bn.

* Sequential loan growth was well spread: Loan growth at 4.0% QoQ was broad based led by corporate (5.5%), retail (4.1%) and agri (3.6%); SME and overseas growth were soft at 1.9%/1.3% QoQ. Corporate saw softer growth mainly due to unusual prepayments as central PSUs utilized their equity funding to de-leverage. Corporate pipeline is strong at Rs1.8trn. While Xpress credit has seen muted growth of 0.5% YoY, it is expected to pick up in FY26. Xpress credit process is revamped to focus on lower salaried segment as change in taxation would improve the customer profile. Overall credit growth is guided to be above the system; we are factoring loan CAGR of 12%.

* Opex growth a key; front loading of provisions: NIM compression may be controlled as 1) repo-linked book is 29% and 2) short term TD rates may be reduced. The new PLI scheme is for scale-4 (chief manager) and above which could increase staff cost by Rs13bn in FY26. Employee cost growth is guided at 6% for FY26E. While cost to income is guided at 50-51%; we expect it to be higher at ~54%. Higher provisioning was on account of (1) ageing based NPA provisions (2) front loading of future credit costs which was possible owing to higher TWO recoveries and reversal of SR provisions (Rs38.75bn).

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