Buy State Bank of India; target of Rs 1000: ICICI Securities

ICICI Securities's research report on State Bank of India

State Bank of India (SBI) has reported steady and broadly in-line Q1FY25 PAT of INR 170bn (up 1% YoY) with 1.1% RoA. Loan growth remained strong at ~16% YoY (up 1.2% QoQ). NIM adjusted for IT refund was flattish QoQ at 3.22%, partly aided by rise in investment yields. Due to amongst lowest domestic LDR (69%) across peers and ample liquidity (LCR – 129%), we do not see slower deposits growth (up 8% YoY and flattish QoQ) as a constraint in the near term. Slippages ratio almost doubled QoQ due to usual Q1 seasonality but has improved on YoY basis. Headline gross and net NPA ratios are stable QoQ. CET 1 stood at 10.25%, and including interim profits stood at 10.77%. CET 1 addition (~10bps) under new investment guidelines was lower than SBI’s initial expectations of ~50bps.

Outlook

We keep our loan growth estimates unchanged at ~15% for FY24–26E. Despite building-in ~20bps NIM compression over FY24-26E, we see strong ~18% CAGR in PPoP due to bloated opex in FY24. We estimate SBI to deliver ~100/90bps RoA and ~17/16% RoE for FY25/26E. Maintain BUY with SoTPbased revised TP of INR 1,000 (earlier INR 980), valuing core banking business at unchanged multiple of ~1.6x FY26E ABV.