Why SBI Bagged A Double Upgrade And Target Price Hike From Citi

Citi has given State Bank of India a double upgrade, changing the rating on the stock from 'sell' to 'buy'. The upgrade is also coupled with a hike in target price from Rs 720 to Rs 830, broadly based on the sharper net interest margin focus.

Further, there is sustained growth and attractive valuation for the counter, according to Citi. The brokerage's interaction with senior management was focused on sharper net interest margin, Xpress credit growth rebound and curtailed credit cost.

The key drivers of NIM improvement was increased focus on current account deposits, reduction of bulk deposit reliance and optimisation of borrowing costs.

SBI is actively managing costs through liability optimisation and reduction in bulk deposits to protect Net Interest Margins. Upcoming repricing of loans and growth in higher-yielding loans will further support NIM, Citi said.

The overseas business team of the bank is working relentlessly to optimise borrowing cost, according to the brokerage. Management targets NIM of around 2.9% to 3%.

Xpress Credit growth is expected to rebound significantly to double digits by the fourth quarter of financial year 2025, according to Citi. Gradual pick-up in higher yielding Xpress credit and SME book are also expected to support yields going ahead.

The lower current penetration of Xpress credit at about 27% allows headroom to grow this portfolio, according to the brokerage.

With the rule-based underwriting in place and its offering only to ETB customers, management is confident of asset quality holding up, added the brokerage.

The company has strong visibility in corporate loans and growth in SME lending will drive overall loan growth, according to Citi.

Given the overall tighter liquidity conditions, SBI’s lowest loan-to-deposit ratio at up to 69% should work in its favour to tap emerging opportunities, the brokerage said. The management guidance for loan growth stands at 14% to 16% year-on-year.

The brokerage noted that SBI had exhibited improvement in its asset quality. Based on improved underwriting processes, and no significant signs of overleveraging in its unsecured credit portfolio, the asset quality was expected to be robust.

Despite gradual upward normalisation, credit costs were expected to be low at 40-50 bps in financial year 2026 and 2027. The brokerage noted that concerns about NIM pressure were adjusted by active cost management.

The brokerage expected the slow Xpress Credit growth to reverse in the fourth quarter, paired with improving profitability of the firm.

Essentially, the brokerage firm has a positive outlook on SBI, citing strong growth, and healthy asset quality, coupled with an attractive valuation.

SBI shares rose as much as 3.17% during the day to Rs 717.3 apiece on the NSE. It was trading 2.62% higher at Rs 713.5 apiece, compared to a 0.25% decline in the benchmark Nifty 50 as of 10:18 a.m.

The stock has fallen 7.61% in the last 12 months. Total traded volume so far in the day stood at 2.4 times its 30-day average. The relative strength index was at 35.26.

Of the 50 analysts tracking the bank, 40 have a 'buy' rating on the stock, seven recommend a 'hold' and three suggest a 'sell', according to Bloomberg data. The 12-month analysts' consensus target price on the stock is Rs 918.3, implying an upside of 28.5%.