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Synopsis : Motilal Oswal Financial Services Ltd recommends buying SBI shares, setting a revised target price of Rs 1,015. With a balance sheet larger than the GDP of 174 countries, SBI is poised for sustainable growth, driven by strong loan growth, controlled expenses, and stable margins. MOFSL projects a 15% CAGR in net profit and an 18.5% RoE by FY26, highlighting SBI's robust financial health and market positioning.
In its latest analysis, MOFSL noted that SBI is well-positioned for continued growth, driven by healthy loan expansion, controlled operational expenses, and strategic provisions. The state-run bank's management anticipates stable margins, leveraging tools like the Credit-Deposit (CD) ratio and Marginal Cost of Funds based Lending Rate (MCLR) re-pricing to offset elevated deposit costs.
SBI's growth trajectory is supported by a low CD ratio, strong underwriting practices, and sustained momentum in its digital platform, YONO. The brokerage emphasized that SBI's asset quality has shown consistent improvement, with significant enhancements in headline asset quality ratios.
"SBI remains one of our preferred choices in the sector. We project a 15% compound annual growth rate (CAGR) in net profit from FY24 to FY26, with an expected Return on Assets (RoA) of 1.1% and Return on Equity (RoE) of 18.5% by FY26," MOFSL stated. They reiterated a "BUY" recommendation, setting a revised target price of Rs 1,015, based on 1.5 times the estimated FY26 adjusted book value (ABV) plus Rs 235 from subsidiaries.
MOFSL praised SBI for its strong performance in recent years, achieving new profitability milestones, including a profit after tax (PAT) exceeding Rs 60,000 crore in FY24. The bank's improved underwriting standards and strengthened balance sheet have significantly reduced non-performing assets (NPAs).
"SBI has delivered a 34% CAGR in returns over the past two years, increasing its market capitalization to $89 billion. Among large global banks, SBI stands out for its superior RoE and loan growth," the brokerage noted.
From FY22 to FY24, SBI achieved a 16% CAGR in loans, outperforming many large peers. With its balance sheet surpassing the GDP of nearly 174 countries, this gap is expected to widen as SBI maintains steady growth.
"SBI has demonstrated high agility and superior execution at its substantial size, positioning it to sustain growth momentum. Its strong liability profile, enviable CD ratio, and robust technological capabilities enable SBI to capitalize on growth opportunities, supported by a stable policy environment and ongoing reforms," MOFSL stated.
The brokerage projects SBI will deliver a 16% CAGR in earnings from FY24 to FY26, driven by healthy loan growth, moderated operational expenses, and controlled credit costs (35-40bps), resulting in an expected RoA of 1.1% and RoE of 18.5% by FY26.
