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Global brokerage Jefferies has raised earnings for State Bank of India (SBI) by 3-5% and target price (TP) to 700 to factor in better credit growth as it is well-placed to gain share in domestic credit & is seeing improved growth overseas. Even as net interest margin (NIMs) may be range-bound as the share of corporate credit rises, healthy credit growth & low credit costs will support earnings growth and ROA improvement, it added.

“Bank needs to boost capital, but instead of primary issue, mgt may monetise stake in subs," the note stated. Jefferies has maintained Buy rating on SBI shares with a target price of 700 (from 630).

SBI is well-placed to benefit from the pick-up in bank credit growth with a pick-up across the corporate segment– locally and overseas. A combination of better economic activity, inflation, & market share gains from bonds have lifted banks' corporate credit growth by 500-700bps since Mar-22, which along with strong retail credit growth has lifted overall bank credit growth to +15%, the brokerage highlighted.

“SBI being a large corporate lender has also seen a strong pick-up here with credit growth improving to 15% in 1QFY23 vs. 11% in Mar-22. Its overseas credit growth also picked up to 22% in 1QFY23 and can improve further with increased activity in syndication (overseas clients), the roll-out of factoring business, and higher trade credit; INR depreciation is boosting growth by 6-8ppt. Hence, we raise credit growth & topline growth estimates for FY23-24," Jefferies added.

Bank may look to monetise part of stakes in listed subsidiaries like SBI Life Insurance (bank owns 56%) and SBI Cards (bank owns 69%). If SBI brings down the stake to 52%, then the value of stake sale can lift the capital adequacy ratio by 70-80bps. Bank may also look to list some unlisted franchises like SBI General and SBI AMC, so we see lower chances of that happening in the immediate term. Valuations, though, are attractive, with value discovery at card and insurance subsidiary, it said.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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