Buy State Bank of India; target of Rs 675: Motilal Oswal

HDFC Securities research report's outlook and valuations:  "The YTD EPS upgrades (consensus) have been led by mid-tiers such as Tata Elxis, Mindtree, Mastek, and Persistent Systems, ranging from 20-40 percent and, within tier 1, by Wipro (~15%). We expect the sector (coverage universe) to post 13 percent and 14.5 percent USD revenue/APAT CAGR over FY21-24E compared to 6.5/7.5 percent over the past five years. The mid-tier valuation premium relative to tier 1s may sustain, based on its relative outperformance (>500bps growth outperformance over FY21-24E as compared to 250bps earlier). We roll over valuations to Sepemtember-23E and increase target multiples for most of the companies in our coverage universe. We remain broadly constructive across the sector and ahead of consensus on growth/EPS; our preferred picks are Infosys, HCLT, Mphasis and Zensar."

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26 Aug, 2025 12:21

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Motilal Oswal's research report on State Bank of India

SBIN reported a steady quarter, with net earnings growing 67% YoY to INR76.3b (15% beat), aided by controlled provisions, as asset quality showed remarkable strength, despite the impact of the second COVID wave. It created a family pension provision of INR74.2b, instead of amortizing it over five years, thus prudently deploying one-off gains from the DHFL recovery and tax refund. The bank has fully provided for its exposure towards the SREI group. GNPA/NNPA ratios improved by 42bp/25bp QoQ to 4.9%/1.5% as fresh slippage subsided to INR41.8b (66bp annualized). Restructured book remained in check at 1.2% of loans, while the SMA pool declined sharply to INR66.9b (27bp of loans).

Outlook

We expect SBIN to deliver FY23E/FY24E RoE of 14.5%/15.7%, even as we build in a credit cost of 1.1%/1%. We maintain our Buy rating, with a revised TP of INR675 (1.4x Sep'23E ABV + INR210 from subsidiaries).

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