Emkay Global Financial’s research report on State Bank of India
SBI posted a slightly soft quarter, as credit growth moderated to 12.4% YoY due to pre-payments in the corporate book, while higher opex (staff cost + deposit insurance) and provisions (std assets + investment + PLI incentive) caused a 5% earnings miss, with PAT at Rs186bn/1.1% RoA. SBI expect credit growth of 12-13% in FY26, while margins could contract in view of the recent sharp rate cuts albeit gradually, given the higher share of MCLR loans. Asset quality would remain healthy, as also the credit cost. This, coupled with treasury gains, should support SBI’s RoA at ~1.1% in FY26E. The mgmt avoided comments on the adverse SC judgement regarding Bhushan Power (recovered Rs40bn/0.9% of FY25 networth). However, our discussions with other PSBs suggest that they shall reverse the recovery once the final judgement on the review petition is declared and, in fact, look for a better recovery rate (over 40%) in case the a/c is presented for re-bidding, thus becoming net beneficiaries.
Outlook
Building in some growth slowdown and margin contraction, we cut FY26-27E earnings by 4-5% and our TP by 5% to Rs975 from Rs1,025, valuing the SA bank at 1.2x FY27E ABV/subs at Rs270/sh; retain BUY, given attractive valuations (0.9x FY27E ABV) for healthy RoA/RoE @1-1.1%/16-17%.
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State Bank of India – 05052025 – emkay
