HDFC Securities has chosen State Bank of India (SBI) as one of its top Diwali stock picks for Samvat 2081, recommending a buy range of ₹733-813 with a target price of ₹960. The public sector bank is expected to benefit from strong credit demand, stable asset quality, and the digital expansion of its YONO platform.
About the Company
SBI is India’s largest public sector bank with a legacy spanning over 200 years. Owned primarily by the Government of India (57.54% stake), the bank offers a wide range of banking products and services to corporate and retail customers, making it a leader in India’s banking space. SBI has also made significant strides in adopting technology, particularly through its digital banking platform, YONO.
Valuation and Recommendation
HDFC Securities expects SBI to sustain its growth, supported by surplus liquidity and a comfortable loan-to-deposit ratio (LDR) of 76.5%. Despite marginal net interest margin (NIM) compression over FY24-FY26, the bank’s credit growth is expected to remain strong, driven by the domestic and foreign loan portfolios. Investors are advised to buy the stock in the range of ₹733-813, with a target price of ₹960 (1.8x FY26E ABV) by next Diwali.
Key Financials (FY22-FY26E):
- Net Interest Income (NII): ₹120,710 crore (FY22) to ₹194,240 crore (FY26E)
- Pre-Provision Operating Profit (PPOP): ₹67,870 crore (FY22) to ₹133,350 crore (FY26E)
- Profit After Tax (PAT): ₹31,680 crore (FY22) to ₹80,940 crore (FY26E)
- Earnings Per Share (EPS): ₹35.5 (FY22) to ₹90.7 (FY26E)
- Return on Equity (RoE): 11.9% (FY22) to 17.2% (FY26E)
- Price-to-Earnings (P/E): 22.7x (FY22) to 8.9x (FY26E)
Key Triggers
- Strong Credit Growth: SBI’s loan portfolio grew by 15.2% in FY24, with domestic loans growing by 16.26% to ₹32.28 lakh crore. The management has guided for a loan growth of around 15% for FY25, underpinned by continued demand in both domestic and international markets.
- Stable Asset Quality: SBI has maintained its gross non-performing asset (GNPA) and net non-performing asset (NNPA) ratios at around 2.2% and 0.6%, respectively, in Q1 FY25, with improvements expected in the coming quarters. The bank’s credit costs are expected to remain contained under 0.5%.
- Digital Transformation: SBI’s digital platform, YONO (You Only Need One), which was launched in 2017, has grown to over 7.8 crore registered users. YONO continues to drive SBI’s digital growth, and the upcoming YONO 2.0 platform is expected to further enhance the bank’s digital banking capabilities.
Key Concerns
- Deterioration in Asset Quality: Higher-than-expected slippages or delays in recoveries could erode SBI’s Tier I capital and profitability, especially in its corporate loan book.
- Regulatory Risks: Unfavorable changes in banking regulations or policies by the RBI or the government could negatively impact SBI’s earnings.
- Competition from Private Banks: SBI faces stiff competition from private sector banks, particularly in terms of digital services, which could impact its market share if it fails to keep pace.
Disclaimer: Investments in the stock market are subject to market risks. The views and recommendations provided in this article are based on analysis from HDFC Securities and do not constitute investment advice. Investors are advised to perform their own research and consult with financial advisors before making any investment decisions. Past performance is not indicative of future results, and the author and publication are not responsible for any losses incurred based on this information. Please read all scheme-related documents carefully before investing.
