
State Bank of India (SBI) is now closing-in on some of the private sector bank in terms of valuations. While the re-rating on the counter could be gradual, JM Financial does not see material triggers for de-rating unless macro deteriorates meaningfully.
The domestic brokerage said while the SBI stock is trading at the upper end of the historical band -- core bank trading at 1.02 times estimated FY26 price to book value, the case for de-rating of valuations could only be due to macro risks or relapse of credit worries that still remains a key discussion point for PSU banks.
JM Financial said an improving credit demand, especially in the wholesale segment, and expected pickup in private capex, may help SBI deliver mid-teens credit growth in the near term. It said most of the deposit repricing is in the base, which is expected to alleviate the pressure on funding costs and asset pricing tweaks are likely to aid net interest margins (NIMs).
"Normalization in opex (in absence of one offs in wage revision) and contained credit cost given favourable macros will help the bank to further improve its profitability, delivering ROAs of 1-1.1 per cent and ROEs of 15-18 per cent. We expect SBI to deliver 21.9 per cent PPOP CAGR (over a lower base of FY24) and 15.4 per cent earnings CAGR over FY24-FY26e. In view of recent market volatility, SBI gives confidence on the back of its strong liability franchise, it said.
"We maintain our BUY rating on the stock with target price of Rs 1,050, valuing the core bank at 1.5 times estimated FY26 BVPS. SBI remains our top PSU pick," it said.
SBI reported superlative credit costs 23 bps for FY24 but JM expects normalisation going ahead.
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