The latest research update from Sharekhan presents a detailed analysis of the State Bank of India (SBI). Despite mixed third-quarter results, the research house maintains a Buy rating, citing strong fundamentals, a healthy loan growth rate, and stable asset quality. The revised price target stands at Rs. 980, supported by expectations of sustained return ratios. Challenges around net interest margins (NIMs) and deposit growth were noted, but these were balanced by better loan performance, lower provisions, and a well-diversified portfolio. The report emphasizes that SBI remains well-positioned to capture growth opportunities in the medium term.

Q3 Performance Overview

Net interest income (NII) and profitability
SBI reported NII of Rs. 41,446 crore, reflecting a 4% year-over-year (YoY) growth. However, sequential performance remained flat due to declining NIMs, which fell by 13 basis points (bps) to 3.01%. Despite these challenges, profit after tax (PAT) exceeded expectations, standing at Rs. 16,891 crore, an 84% YoY increase, driven by lower provisions.

Loan growth outpaces industry
SBI's loan book expanded by 14% YoY, outpacing the industry average of 11.5%. Retail, agricultural, and SME loans grew by 12%, 15%, and 19%, respectively. The corporate and overseas portfolios also demonstrated robust growth of 15% and 10%.

Asset quality stability
The gross non-performing assets (GNPA) ratio improved to 2.07%, compared to 2.42% in the previous year. Net NPA remained steady at 0.53%, indicating strong risk management practices.

Key Positives and Challenges

Positives

Lower slippages: Slippages reduced to 0.47%, improving asset quality.
Core fee income growth: Core fee income rose by 16% YoY and 6% sequentially.
Healthy advances: Net advances reached Rs. 40 lakh crore, reinforcing SBI's market leadership.
Challenges

NIM compression: The decline in NIM by 13 bps was attributed to rising funding costs.
Stagnant deposit growth: Deposits grew by 10% YoY, primarily driven by term deposits, while the CASA ratio declined to 37.6%.

Technical Analysis: SBI Stock Performance

Support and Resistance Levels

Support: Rs. 740
Resistance: Rs. 780, with a critical resistance at Rs. 900 for medium-term momentum.
Candlestick Patterns
The daily chart shows bearish engulfing patterns, indicating selling pressure at higher levels. However, a bullish reversal is expected around Rs. 740 if buyers regain control.

Fibonacci Analysis
Using the 52-week high of Rs. 912 and the low of Rs. 654, key Fibonacci retracement levels are as follows:

38.2% Level: Rs. 783
50% Level: Rs. 783
61.8% Level: Rs. 844

Management Commentary and Forward Guidance

The bank's management reaffirmed its loan growth target of 14-16% for FY25 and aims to boost deposit growth to 10-11%. Efforts are underway to enhance the CASA ratio by focusing on salary accounts and customer outreach. Additionally, the management remains confident in sustaining return on equity (RoE) above 15% and return on assets (RoA) at 1%.

NIMs are expected to stabilize as the rate cycle reverses. The bank also emphasized the importance of leveraging its subsidiary businesses, including SBI Life Insurance and SBI Cards, to drive overall profitability.

Investment Recommendation

Sharekhan reiterates its Buy recommendation on SBI, with a revised price target of Rs. 980. The stock currently trades at 1.1x FY25 core book value and offers a favorable risk-reward profile. Investors can expect healthy returns driven by strong fundamentals, operational improvements, and strategic growth initiatives.

However, risks such as an economic slowdown and potential credit cost increases could impact performance. Investors are advised to monitor macroeconomic conditions and regulatory developments closely.

Bottomline for Investors

SBI's Q3 results highlight both opportunities and challenges in India's evolving banking sector. While NIM pressures and deposit growth remain areas of concern, the bank's strong loan growth, improving asset quality, and diversified revenue streams position it well for sustained long-term success. Investors seeking exposure to India's largest bank can benefit from SBI's leadership in both retail and corporate banking segments, supported by a promising growth outlook.

Disclaimer: This article is for informational purposes only. Investors are advised to conduct their own due diligence and consult financial advisors before making investment decisions.