Buy State Bank of India, target price Rs 1,000: Motilal Oswal Financial Services

Motilal Oswal Financial Services has a buy call on State Bank of India with a target price of Rs 1,000. The current market price of State Bank of India is Rs 828.4. State Bank of India, incorporated in the year 955, has a market cap of Rs 737932.21 crore.

State Bank of India's key products/revenue segments include Interest & Discount on Advances & Bills, Income From Investment, Interest and Interest On Balances with RBI and Other Inter-Bank Funds for the year ending 31-Mar-2024.

Financials

For the quarter ended 30-09-2024, the company has reported a Consolidated Total Income of Rs 163802.38 crore, up 7.68% from last quarter Total Income of Rs 152125.05 crore and up 13.55% from last year same quarter's Total Income of Rs 144256.12 crore. The bank has reported net profit after tax of Rs 19782.76 crore in the latest quarter.

Investment Rationale
State Bank of India reported a healthy quarter, driven by robust treasury income and steady NII. Margins moderated 8bp QoQ; however, the bank now expects NIMs to be maintained at current levels, supported by levers such as CD ratio and MCLR repricing (30-35bp cushion in MCLR pricing). Credit growth was healthy while the unsecured book (Xpress Credit) saw continued moderation. Deposit growth was healthy after a sluggish 1Q though moderation in the CASA mix continues.

The bank has seen a reduction in its domestic CD ratio to ~67.9%. Fresh slippages and credit cost were contained, which underscores the improvement in underwriting standards and enabled further reduction in NPA ratios. Restructured book was well in control at 0.38% of advances; however, the SMA pool saw a significant increase to 36bp of loans vs 12bp of loans in 1Q, driven by PSU accounts. Motilal Oswal Financial Services broadly maintains earnings and estimate FY26 RoA/RoE of 1.1%/17.4%. SBI remains the brokerage's preferred stock in the PSU banking space and they have reiterated a BUY with a target price of Rs 1,000 (1.5x FY26E ABV).

Promoter/FII Holdings
Promoters held 57.51 per cent stake in the company as of 30-Sep-2024, while FIIs owned 10.71 per cent, DIIs 23.94 per cent.