SBI Q1 Results Review - Balance Sheet Strength To Protect Net Interest Margin: Prabhudas Lilladher

Prabhudas Lilladher Report

State Bank of India reported a steady quarter as core pre-provision operating profit beat our estimate by 7.2% owing to lower opex, although fees and asset quality were a miss. Credit growth was largely in-line, while deposit growth was soft at 8.2% YoY due to focus on controlling high borrowing cost; strong balance sheet allows deposit accretion to remain muted.

Hence, domestic loan-deposit ratio that touched 69% (65% in Q1 FY24) can further increase to 70-72%. SBI can achieve 15% loan growth since surplus liquidity is Rs 3.7 trillion and capital can support loan accretion of Rs 6-7 trillion. Liquidity coverage ratio is strong at 129%, which can absorb the impact of draft RBI circular. Slippages were higher led by agri (seasonal) and unsecured; however, the bank has recovered a chunk of unsecured loans.

We maintain multiple at 1.5 times on core FY26 adjusted book value but raise SOTP-based target price to Rs 960 from Rs 910 led by-

1. Rs 37 billion accretion to equity due to new investment norms,

2. upgrade in core earnings by ~2% and

3. increase in subsidiary valuation.

Retain ‘Buy’.

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