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HDFC Securities Institutional Equities
State Bank of India's FY24 annual report offers incremental insights on its sector leadership across asset classes, key catalysts driving its superior asset quality, competitive edge in sourcing, improving digital stack (YONO), an unparalleled lean distribution model, and a potent combination of cross-sell focus and competencies.
While asset quality continued to stay benign, we argue that SBI needs to further build its provision buffer (provision coverage ratio at 75%), given a low margin of safety on account of higher mix of ageing gross non-performing assets.
While SBI has been able to improve its capital buffer via internal accruals, the bank needs to evaluate fundraising alternatives in the medium-term to meet its growth guidance (~13-15% for FY25).
Although SBI managed credit costs < 30bps on the back of lower slippage run-rate and healthy recoveries, we expect credit costs to normalise upwards (average ~40 bps) during FY25-26.
We reiterate that the combination of SBI's traditional strengths and newly added moats are likely to reflect in efficiency gains, resulting in RoAs sustaining at over 1%. We factor in further operating efficiencies and marginally lower credit costs in our estimates and reiterate Buy with a revised target price of Rs 1,040 (standalone bank at 1.6 times March-26 adjusted book value per share).
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