Buy State Bank of India; target of Rs 790 HDFC Securities

HDFC Securities' research report on State Bank of India

While SBI always had the natural advantage of brand recognition and scale, the bank has gradually added other competitive moats in the form of a prolific sourcing edge, a YONO-powered digital stack, an unparalleled lean distribution model, and a potent combination of cross-sell focus and competencies. Although we argue that the Q1FY24 RoA (1.3%) and RoE (>20%) prints are exaggerated for regulatory forbearance (lower risk weights), lopsided pricing (lagged deposit repricing), and a benign credit cycle, we believe that the potent combination of traditional strengths and newly-added moats is reflecting in higher throughput, sustained efficiency gains (lean P&L), and high-quality new loan origination, translating into structurally lower credit costs and better return ratios.

Outlook

We raise our two-year explicit period forecasts by 6-8% each to factor in a superior asset profile and maintain BUY with a revised TP of INR790 (earlier INR750; standalone bank at 1.4x Mar-25 ABVPS).