Emkay Research issues a BUY recommendation on State Bank of India (SBI), India's largest lender, positioning the stock as a compelling value play for investors seeking stable growth and resilient returns. The latest result update delivers a convincing outlook, anchored by robust operational performance, strong asset quality, and disciplined margin management. SBI's consistent outperformance against sector averages, paired with an ambitious, yet realistic, earnings trajectory keeps the bank at the forefront of institutional portfolios. With a target price of Rs975 and upside potential exceeding 20%, the report crafts a powerful narrative for SBI’s continued leadership in India's evolving banking landscape.

SBI: Emkay's BUY Call Sets Bullish Tone

Emkay Research reaffirms its BUY rating for SBI, holding its target price steady at Rs975, translating to a projected upside of 21.3% from current levels. SBI is valued at 1.2x Jun-27 estimated adjusted book value, with subsidiaries and investments conservatively pegged at Rs270 per share. The conviction rests on outperformance in profitability and return metrics. SBI currently trades at Rs804, with a 52-week range of Rs680–876, and a market capitalization of Rs7,424bn (USD84.7bn)—essential indicators for investors sizing the stock’s strength in the benchmarks.

Performance Highlights: Results Outpace Expectations

SBI posted a ~6% beat on profit after tax (PAT), delivering Rs192bn and a 1.1% RoA for Q1FY26. Treasury gains and rigid cost controls propelled the beat, partially mitigating higher provisions. Credit growth remains robust at 12% YoY, decisively outpacing system averages, with notable strength in retail and MSME loans. Management signals confidence in sustaining 12% loan growth for FY26E, bolstered by a rich pipeline in project financing and an anticipated pickup in mortgage lending. Margins, though slightly compressed in Q1 and Q2, are forecasted to rebound by year-end—helped by deposit repricing, CRR cuts, and new capital infusions.

Operational Momentum: Retail and MSME Engines

Retail and MSME loan portfolios continue their upward trajectory, driving overall credit growth. The corporate portfolio, however, lags due to substantial pre-payments (Rs120bn) and migration to market instruments. In the Xpress Credit segment, growth was strategically dialed down to address over-leveraging, but a renewed thrust is expected as underwriting filters and borrower profiles improve. Deposit growth mirrors healthy loan expansion, with the CASA ratio remaining in a steady, though slightly contracting, range.

Margin, Cost, and Asset Quality Dynamics

SBI’s net interest margin (NIM) exhibited minimal contraction compared to peers, holding at 2.9% in Q1FY26. The downward pressure stemmed from higher funding costs and a marginal decline in CASA deposits. SBI's management guides for a U-shaped NIM trajectory, with improvement forecasted as CRR reductions release Rs520bn and deposit costs normalize. Asset quality remains commendable. Gross slippages rose to Rs84bn due to seasonal agri shocks but were largely offset by strong recoveries, keeping GNPA stable at 1.8%. MSME underwriting quality remains tight, with no visible deterioration.

Outlook: Growth Drivers and Strategic Vision

SBI maintains double-digit loan growth guidance, targets corporate loan expansion at 10-11%, and MSME at 19-20%. Corporate credit is expected to strengthen from a strong sanction pipeline (Rs7.2trn), while government capex and infrastructure lending—including green hydrogen and thermal power—show promise. In premium housing and CRE/LRD sectors, Mumbai remains a hotspot, although some developers are in wait-and-see mode. On the funding side, fixed deposit rate cuts should enhance the cost advantage in subsequent quarters.

Valuations and Share Price Levels for Investors

SBI’s share price currently trades at just 0.9x FY27E adjusted book value, presenting a value opportunity amid sector-wide rerating. The stock’s historic volatility and adherence to mean and standard deviation boundaries underpin its appeal for tactical positioning. Dividend yields are projected in the 2.1–2.5% range, supported by an established payout ratio near 20%. Key valuation metrics display de-risked earnings growth: FY26E estimated RoA at 1.0–1.1%, and RoE at 15–17%, supporting long-term accumulation.

Balance Sheet Strength and Capital Adequacy

SBI sustains industry-leading capitalization with CAR at 14.6% and Tier-I at 12.5% as of Q1FY26. High provision coverage (PCR at 74.5%) alongside steady reduction in net NPLs demonstrates prudent risk management. Deposit mobilization exhibits strength with balances climbing towards Rs59.4trn in FY26E and loan growth forecasted at 12.4%. The loans-to-assets ratio is stable, and cash reserves remain healthy, supporting operational and regulatory requirements.

Risks and Forward-Looking Statements

Key risks include trade-related disruptions, sectoral shocks, and asset quality volatility, especially seasonal agri slippages and MSME exposures. SBI’s exposure to certain impacted sectors is marginal, but management remains vigilant. The upside to credit cost guidance is limited by disciplined recoveries and buffer provisions. Subsidiary listings remain a latent catalyst, but timelines are flexible.

Investor Call-to-Action: SBI’s Enduring Value

For investors, SBI represents a stable compounder, embarking on a multi-year growth cycle with resilient earnings power. Emkay’s reiteration of the Rs975 target and BUY rating is underpinned by balanced risk, sector outperformance, and superior return metrics. At current levels and valuations, SBI offers a compelling risk-reward profile—built on operational fortitude, margin preservation, and capital discipline.