SBI - New Moats Emerge As Game Changers: HDFC Securities

BQ Prime’s special research section collates quality and in-depth equity and economy research reports from across India’s top brokerages, asset managers and research agencies. These reports offer BQ Prime’s subscribers an opportunity to expand their understanding of companies, sectors and the economy.

HDFC Securities Institutional Equities

State Bank of India’s Common Equity Tier-I ratio has been hovering close to 10% over the past few years, which we flagged as a matter of caution, given the combination of modest return ratios (sub-1% return on asset) and a visible return of growth appetite (13% loan book compound annual growth rate).

However, in recent quarters, we have been positively surprised by the core operating profitability run rate, thanks to reflating margins and improving efficiencies as elaborated in the earlier sections.

Combined with low credit costs on the back of a benign credit cycle, SBI has shored up its CET-1 ratio organically to ~10.3%, which offers sufficient headroom for business as usual growth requirements.

We believe SBI is well on track to continue delivering a consistent 1%+ RoA on the back of a healthy credit engine riding on comfortable loan-to-deposit ratio, modest deposit mobilisation, revamp in small and medium enterprise and steady growth in retail resulting in superior net interest margins.

While there are visible signs of a near-term NIM compression on the back of lagged deposit repricing, we believe that SBI has a few levers to offset some of the NIM compression.

We raise our two-year explicit period forecasts by 6-8% each to factor in a superior asset profile and maintain 'Buy' with a revised target price of Rs 790 (earlier Rs 750; standalone bank at 1.4 times March-25 adjusted book value per share).

Click on the attachment to read the full report:

HDFC Securities Institutional Equities SBI - Update.pdf

Read Document

Also Read: Medium And Small NBFCs Eye Credit Risk Mitigation Tools To Offset Exposure

DISCLAIMER

This report is authored by an external party. BQ Prime does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of BQ Prime.

Users have no license to copy, modify, or distribute the content without permission of the Original Owner.