Top Conviction Ideas : Buy State Bank of India Ltd for Target Rs. 1,025 - Axis Securities Ltd
* Growth Buoyancy to Continue: SBI has seen strong growth in the Home Loans and SME segments and expects the momentum to continue. The growth in the Xpress credit segment has been muted for the past few quarters. The bank has seen stress emerging amongst the low-netincome government employee customer segment, owing to over-leveraging. Consequently, SBI consciously slowed down the pace of growth. However, the demand is gradually picking up from Q2 onwards, and the bank is also re-examining growth in certain segments it had placed on the back burner earlier. Moreover, the corporate sanctions pipeline remains strong at Rs 7.2 Tn, and SBI expects double-digit corporate growth to resume from Q2 onwards. The management has continued to guide for 12-13% growth in advances for FY26.
* Confident in Maintaining Domestic NIMs at 3%: Currently, 30.2% of the portfolio is EBLR-linked, 30.7% is MCLR-linked, 22.6% is fixed rate, and 15.9% is T-bill-linked. Thus, NIMs will continue to contract in Q2, reflecting repo rate changes. However, the bank is confident of maintaining domestic NIMs at 3% in FY26, driven by recovery in margins in H2. The CRR cut (releasing ~Rs 520 Bn) and the benefit of the rate cut actions taken on SA and TDs flowing in the CoF from Q3 onwards, should support margin recovery. We expect NIMs to remain range-bound between 3.0- 3.2% over FY26-28E.
* Comfortable RoA Delivery of 1%: SBI remains well-poised to sustain its growth momentum, supported by its comfortable LDR, providing it with leverage to accelerate credit growth. While nearterm pressures are expected to be visible on NIMs, benefit from deposit rate cuts, which will reflect in CoF from H2 onwards, should support NIM recovery. The bank is making concentrated efforts to contain Opex growth by focusing on improving productivity and maintaining the C-I Ratio at <50% across cycles. Asset quality does not pose challenges, and thus, credit costs should remain benign. Collectively, this should ensure a comfortable 1% RoA delivery over FY26-28E. The recent QIP has strengthened the Tier I capital, adequate to fuel medium-term growth
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