SBI shares in focus as bank to acquire SBI Capital Markets' 20% stake in SBI Pension Funds

Shares of State Bank of India Ltd will be in focus in Wednesday's trade after the executive committee of the Central Board accorded approval for acquiring of entire stake held by SBI Capital Markets in SBI Pension Funds by SBI, subject to receipt of regulatory approvals.

In a filing to BSE, SBI said: "Pursuant to Regulation 30 and other applicable provisions of SEBI (LODR) Regulations, 2015, we advise that the Executive Committee of the Central Board (ECCB) of the bank has accorded approval for acquiring the entire 20 per cent stake held by SBI Capital Markets Ltd. in SBI Pension Funds Pvt. Ltd. by State Bank of India, subject to receipt of all regulatory approvals."

Analysts are largely positive on the prospects of SBI. The average price target on the stock at Rs 717 suggests a 27 per cent potential upside.

Elara Securities said strong profitability and low credit cost may help SBI deliver 1 per cent-plus return on asset (RoA) and 16 per cent-plus return on equity (RoE) in FY24 and FY25. Adjusted for subsidiary valuation of Rs 155, it believes the core bank trades at an attractive valuation of 0.9 times FY25 adjusted book value.

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With portfolio sustaining credit quality, it expects slippages for the bank in FY24 and FY25 to be at 1 per cent and 1.3 per cent, respectively.

"SBI delivered a strong performance in FY23, propelled by steady business/revenue growth and controlled provisions. We estimate the momentum to remain healthy as utilization levels improve, while Retail growth is likely to remain steady. A higher mix of floating loans and CASA mix will support margins even as the cost of deposits picks up at a faster pace. Asset quality performance has been strong and the outlook remains healthy as restructured book remains in control at 0.8 per cent and the SMA pool has declined further to 10 bps of loans," said Motilal Oswal Securities.

The brokerage expects the credit cost to remain in control at 0.5 per cent over FY23-25, enabling a 15 per cent earnings compounded annually over FY23-25.

"We estimate SBI to deliver sustainable RoA/RoE of 1 per cent/18 per cent over FY23-25. SBI remains our preferred Buy in the sector with a target of Rs 700 (premised on 1.1 times FY25E ABV + Rs 205 from subsidiaries).

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