SBI - Business Outlook Steady; Internal Accruals To Support Growth Momentum: Motilal Oswal

Motilal Oswal Report

State Bank of India’s robust performance has been aided by strong loan growth and lower provisions. Opex has been running elevated due to high wage provisions affecting pre-provision operating profit growth.

Net interest margins have declined in recent quarters and the management has guided for broadly stable margins (3-5 basis points downside bias) as the bank has levers in place (credit-deposit ratio, marginal cost of fund-based lending rate re-pricing) to mitigate the impact of the rising cost of deposits.

The asset quality performance remains strong with consistent improvements in headline asset quality ratios, while the restructured book remains under control at 0.6%, along with lower special mention account pool at 12 bp of loans.

We estimate SBI to deliver FY25E return on asset/return on equity of 1.1%/18.3%.

We believe that the bank is well poised to deliver more than 1% RoA on a sustainable basis.

We reiterate 'Buy' with a target price of Rs 700 (1.1 times FY25E adjusted book value plus Rs 202 from subs).

SBI remains one of our preferred picks in the sector.

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