'Balance sheet size more than GDP of 174 countries': Buy SBI shares, revised target at Rs 1,015, says MOFSL

Motilal Oswal Financial Services Ltd (MOFSL) in its latest note said State Bank of India (SBI) remains well-positioned to deliver sustainable growth with high profitability, led by healthy loan growth, controlled opex and provisions. The state-run bank's management has guided for broadly stable margins going forward as the bank has levers such as CD ratio and MCLR re-pricing in place to mitigate the impact of the elevated cost of deposits, the domestic brokerage said.

SBI, it said, is well-positioned to sustain its growth trajectory, supported by a low CD ratio, strong underwriting and continued momentum in YONO. The asset quality performance remains strong with consistent improvements in headline asset quality ratios, the brokerage said.

"SBI is one of our preferred ideas in the sector. We estimate a 15 per cent CAGR in net profit over FY24-26E, with FY26E RoA/RoE of 1.1 per cent/18.5 per cent. Reiterate BUY with a revised target price of Rs 1,015 (1.5 times FY26E ABV + Rs 235 from subsidiaries," it said. 

State Bank of India, MOFSL said, has delivered a strong all-round performance for the past few years and has achieved new milestones in profitability (PAT surpassed Rs 60,000 crore in FY24). The PSU bank has demonstrated considerable improvements in underwriting standards, while the consistent strengthening of its balance sheet has brought NPAs to pristine levels, the brokerage said.

"In terms of returns, SBI has delivered a 34 per cent CAGR over the past two years, with its market cap swelling to $89 billion. Our assessment of large global banks shows that SBI has delivered the best-in-class RoE and loan growth among large global banks," MOFSL said.

During FY22-24, SBI delivered a 16 per cent CAGR in loans, outperforming many large peers. MOFSL said the current size of SBI balance sheet at Rs 62 lakh crore is more than the GDP of almost 174 countries in the world. It said this gap is only going
to widen as SBI delivers steady growth going ahead. 

"SBI has demonstrated high agility and superior execution even at this huge size and is well poised to maintain this momentum. A strong liability profile, an enviable CD ratio and robust tech capabilities position SBI well to capitalise on growth opportunities as a stable policy environment and continued reforms continue to bolster overall economic activity," it said.

MOFSL said SBI may deliver a 16 per cent CAGR in earnings over FY24-26, backed by healthy loan growth, moderation in opex ratios and controlled credit cost (35-40bps), thus resulting in FY26E RoA/RoE of 1.1 per cent/18.5 per cent.