LKP Securities has reiterated its BUY rating on State Bank of India (SBI) following a resilient Q4FY25 performance, driven by robust credit growth and improving asset quality, albeit with lower net interest margins and elevated provisioning. SBI’s diversified loan book and digital transformation initiatives have helped it maintain leadership in the Indian banking sector. The research house has pegged a revised 12-month target price of Rs 907, implying a 17% upside from the current market price of Rs 774. SBI’s prudent capital strategy, declining NPAs, and strong retail and corporate lending momentum reinforce its long-term growth trajectory.

Q4FY25 Summary: Broad-Based Growth Tempered by Provisioning

SBI’s net interest income (NII) rose 2.7% year-on-year to Rs 428 billion, backed by 12.4% YoY growth in advances. However, profitability was tempered by a 300% YoY increase in provisions, rising to Rs 64 billion. Consequently, net profit for the quarter declined 9.9% YoY to Rs 186 billion, despite a 10.4% QoQ growth.

Net interest margin (NIM) contracted 19 basis points YoY to 3.1%, reflecting the higher cost of deposits. The cost-to-income ratio rose to 53.4%, affected by one-off performance-linked incentives for senior management.

Loan Book Momentum Sustains with Diversified Growth

Total advances climbed to Rs 41.6 trillion, up 12.4% YoY and 4.0% QoQ. Retail lending saw a 9.6% YoY expansion, agriculture loans rose 14.3%, SME lending jumped 16.9%, and corporate advances increased by 9.0%. However, express credit loan growth was subdued at 1.5% YoY due to the bank’s digital transition in the segment.

Deposit base reached Rs 53.8 trillion, growing 9.5% YoY. CASA deposits contributed 40% of total deposits, with current accounts growing 27% YoY and savings deposits increasing by 2.8%.

Asset Quality Strengthens, NPAs Show Meaningful Decline

Gross NPA fell to 1.82% in Q4FY25 from 2.07% in Q3FY25, while net NPA declined to 0.47% from 0.53% sequentially. This improvement stemmed from higher recoveries and write-offs. The slippage ratio improved marginally to 0.55%.

Provision coverage ratio (PCR) remained healthy at 74.4%. The bank transferred a Rs 1.5 trillion pool to NARCL, further cleansing its balance sheet.

Operating Metrics Remain Resilient Despite Margin Compression

Pre-provision operating profit (PPOP) grew 8.8% YoY to Rs 313 billion, driven by a 39.4% surge in other income, which stood at Rs 242 billion. This was partly offset by a 17.9% increase in total operating expenses, primarily due to Rs 13 billion in PLI-related outflows.

Credit cost for the quarter remained well-contained at 0.38%, within management guidance of 0.50%.

Forward Guidance: Growth Outlook and Capital Strategy

Management guided for 12–13% credit growth in FY26, with strong momentum from the corporate segment and a deal pipeline of Rs 3.4 trillion. Return ratios are expected to stabilize, with RoA and RoE maintained above 1% and 15%, respectively.

The bank also secured board approval to raise Rs 250 billion in capital over the next 12 months, contingent on market conditions and growth requirements.

Subsidiaries and Valuation Breakdown

LKP’s revised price target of Rs 907 is based on a sum-of-the-parts (SOTP) valuation. The core banking business is valued at 1.2x FY27E book value, while Rs 167 per share is attributed to SBI’s subsidiaries and investments.

SBI is currently trading at 1.2x FY27E BVPS of Rs 627.7**, below its 3-year average of 1.5x, offering a favorable risk-reward profile for long-term investors.

Key Financial Snapshot

Capital Adequacy and Liquidity Buffer

SBI's Tier-1 capital ratio stood at 12.1%, with total CAR at 14.3% as of Q4FY25. The bank maintains a comfortable credit-deposit ratio of 77.4%, ensuring ample liquidity to fund future growth.

Management has confirmed that savings rate cuts are not anticipated in the near term, suggesting stability in liability costs going forward.

Solid Fundamentals Reinforce Long-Term Buy Thesis

SBI’s Q4FY25 performance affirms its foundational strength amid short-term profitability headwinds. A diversified loan book, improving asset quality, and strategic provisioning efforts underscore the bank’s ability to weather volatility. With ample capital, a clean balance sheet, and consistent credit growth, SBI remains a cornerstone investment in India’s financial sector.

LKP Securities' reiterated BUY rating and target of Rs 907 reflect confidence in SBI’s structural advantages and positioning for macro recovery.