Buy State Bank of India Ltd for the Target Rs. 1,100 By Prabhudas Liladhar Capital Ltd
Levers in place for higher credit growth
Quick Pointers:
* Core PPoP/PAT beat due to higher NIM/fees; asset quality improves.
* Earnings quality remains class leading; remains our preferred pick.
SBI saw a strong quarter as core PAT beat PLe by 14% since NII/NIM and core fees surprised positively. Despite estimate of NIM fall, reported NIM increased by 7bps QoQ to 3.09% led by decline in deposit cost partly driven by increase in daily average CASA. Core fees were more due to rise in interchange fees, part of which may be sustainable. Loan growth was a bit better at 3.9% QoQ that was broad based. While we have factored in 13% YoY growth for FY26, there is adequate liquidity to fund higher growth, as LCR is healthy 143%. Asset quality continues to remain benign as net slippage was 9bps lower at 26bps. Earnings quality remains one of the best owing to profitability and RoRWA focused credit growth. Due to higher NII/fees we raise FY26/27E core PAT by avg. 6% We keep multiple at 1.3x but increase SOTP-based TP to Rs1,100 from Rs960 as we roll forward to Sep’27 core ABV. Retain ‘BUY’.
* NII miss was offset by better opex/fees; asset quality was better: NII was higher at Rs429.8bn (PLe Rs415.2bn) as NIM (calc.) was a beat at 2.79% (PLe 2.70%). Reported NIMs increased by 7bps QoQ to 3.09%. Loan growth was a bit higher at 13.1% YoY (PLe 12.3%); deposits grew 9.3% YoY (PLe 9.6%). CASA ratio was 38% (37.8% in Q1’26); LDR was 78% (76.7% in Q1’26). Other income was higher at Rs199.2bn (PLe Rs179.2bn) due to 4.7% beat on fees and higher treasury. Opex at Rs310bn was largely in-line; staff cost was lower offset by higher other opex. Core PPoP at Rs240.2bn was 11.6% above PLe; PPoP was Rs319bn. GNPA was lesser at 1.73% (PLe 1.77%) due to lower gross slippages at Rs50bn (PLe Rs56.9bn) and better recoveries at Rs22.8bn (PLe Rs20bn). Provisions were more at Rs54bn (PLe Rs44.3bn) due to increase in std. asset provisions. Core PAT was 11.9% above PLe at Rs141.6bn. PAT was Rs201.6bn.
* Sequential loan growth was broad based: Loan growth was healthy at 3.9% QoQ which was broad based driven by corporate 4.2%, retail 3.5%, agri 5.7% and SME 2.7%. Bank expects corporate growth to pick-up in H2FY26 while target is to maintain its HL growth rate at 14-15%. Offtake in Xpress credit has been slower (+1.6% QoQ) partly due to customers shifting from unsecured to secured gold on account of higher interest rates. CASA is holding up well attributable to branch focus on increasing avg. balances and no MAB charges within SA. Bank guided to system loan growth of 11-12% for FY26; we are factoring 13% for SBI. LCR at 143.8%, suggests further growth levers.
* Fee surprised positively; ECL may not dent PAT: NIM beat street estimates, increasing QoQ due to reduction in deposit cost led by focus on shoring up daily average CASA. Core fee was higher that increased by 11.7% QoQ driven by strong growth in loan processing, remittance and cross-sell fees which was partially attributable to healthy debit card spends and higher interchange fees (may not be sustainable). As per the bank, ECL impact would be limited due to long road-map for implementation (4 years i.e. Mar’31).
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