Buy State Bank of India; target of Rs 1100: Emkay Global Financial

Emkay Global Financial' research report on State Bank of India

SBI continues to report sector-beating credit growth of 13% YoY and margins of 2.97% (up 7bps QoQ), which, coupled with the higher other income, led to a strong 7.4% PAT beat at Rs202bn/1.2% RoA. SBI, a strategic investor, is the only bank which could recognize stake sale gain (Rs46bn) from Yes Bank (still holds ~10.8% stake) via P&L; it prudently used the gain to shore-up specific PCR to 76% (vs 74.5% in Q1), thus preparing to limit the ECL impact from transition (wef 1-Apr-27). SBI has raised its credit growth guidance to 12-14% for FY26, mainly led by improving growth impulse in retail and corporate credit. We expect margins to remain rangebound, with benefit from the recent CRR cut partly offsetting any impact from further rate cuts. Factoring in the Q2 earnings beat and strong growth guidance, we raise our earnings estimates by 3-5% and expect the bank to deliver a healthy RoA of ~1.0-1.1%/RoE of ~15-16% (after the recent capital raise).

Outlook

We remain positive on PSBs (including SBI), given their outperformance vs PVBs. Thus, we retain BUY, with a revised TP of Rs1,100 (up 13%), rolling forward the standalone bank at 1.3x Sep-27E ABV and subsidiary at Rs300/sh.

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