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Single digit topline growth with high profitability growth: State Bank of India reported single digit net interest income growth of 4.6% QoQ/3.1% YoY to Rs 41,655cr as margins remained flat during the quarter while advances reported healthy growth. Total income increased by 8.6% QoQ/20.1% YoY, however, the growth was offset by increase in interest expenses which increased by 3.7% QoQ/32% YoY as cost of deposits remained elevated. Operating expenses remained flat with decline of 2.1% QoQ and increase of 2% YoY mainly due to decline in employee costs. Owing to moderation in operating expenses, PPOP increased steadily by 41.4% QoQ/16.8% YoY. Consequentially, PAT too reported strong growth of 126% QoQ/24% YoY to Rs 20,698cr as provisions moderated.

NIMs declined on YoY basis: Net interest margin during the quarter improved sequentially by 6bps, however, on YoY basis it declined by 37bps. The decline in NIMs was mainly to increase in cost of deposits by 6bps QoQ/82bps YoY. The management remains confident about the NIMs projection in FY25 and expects that NIM would remain at current level. The bank expects cost of deposits to stabilize in the coming quarters which shall aid the margins.

Healthy growth in advances: Advances during the quarter increased by 5.1% QoQ/15.2% YoY to Rs 37.7 lakhs cr. The growth in advances was broad based as segments such as retail personal (4.3% QoQ/14.7% YoY), Agri (4.5% QoQ/17.9% YoY) and SME (3.6% QoQ/20.5% YoY) reported healthy growth. Corporate segment which historically reported subdued growth increased by 11.1% QoQ/16.2% YoY. Going forward, the management expects that credit growth will by 14-16% in FY25 which remains higher than the industry.

Steady Deposits growth led by term deposits: Deposits during the quarter increased by 3.2% QoQ/11.1% YoY to Rs 49.2 lakhs cr. The growth in deposits was mainly led by the term deposits which increased by 3.6% QoQ/16.4% YoY while CASA deposits remained muted with growth of 3.2% QoQ/4.2% YoY. Due to muted growth in CASA deposits, CASA ratio declined by 7bps QoQ/269bps YoY to 41.1%. The management expects deposits to grow at 13-15% YoY in FY25 which is line with the industry growth rate.

Asset quality continues to improve: State Bank of India’s asset quality continued to improve during the quarter as GNPA/NNPA declined by 54bps/10bps YoY to 2.2%/0.6%. The improvement in asset quality was also due to decline in slippage ratio which declined by 5bps QoQ/3bps YoY 0.6%. The bank continues to see decline in provision as its provision coverage ratio declined by 137bps YoY to 75%. In FY24. The bank is seeing improvement in asset quality across segments as all the segments reported decline in NPA ratio.

Valuation and outlook: SBI during the quarter reported healthy growth in profitability as employee expenses and provisions moderated during the quarter. Margins improved sequentially while deposits/advances reported healthy and sustainable growth. The asset quality of the bank continues to improve along with decline in slippages. Financially, we expect its NII/PPOP/PAT to grow at a CAGR of 27.3%/22.1%/22.5% over FY24-26E. We maintain Buy on the bank with a revised target price of Rs 975 valuing the standalone bank at 1.5x of its FY26E Adj. BV.

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