SBI Funds share price: Jefferies initiates coverage with Buy, 26% upside target

Jefferies on Friday initiated coverage on SBI Funds Management Ltd with a 'Buy' call and a target price of Rs 710 apiece, implying 26 per cent upside for the stock. The brokerage highlighted four key differentiators for SBI Funds: its exclusive association with the country's largest PSU bank, State Bank of India (SBI); market leadership in faster-growing lower-tier markets; a well-diversified scheme mix; and institutional scale.

Jefferies expects SBI Funds to report 15 per cent operating profit growth compounded annually through FY29, led by 18 per cent growth in mutual fund assets under management (AUM) and operating leverage.

The brokerage's target price is based on 40 times September 2028 estimated operating profit after tax (OPAT), in line with HDFC AMC's valuation multiple given the similar earnings growth profile.

Jefferies noted that SBI accounts for 35 per cent of SBI Funds' equity AUM, compared with 8 per cent for ICICI AMC and 6 per cent for HDFC AMC.

It sees the parent bank offering three advantages to SBI Funds. The first is expansion opportunity, noting average MF AUM per SBI branch is only 10 per cent of retail deposits. Jefferies said the cost of distribution is lower at 65 bps versus 68-69 bps for other banks. Besides, the affinity of SBI customers for SBI FM's schemes could reduce performance-related risks to growth, Jefferies said.

SBI Funds is trading at 37 times September 2027 estimated operating profit, a 5 per cent discount to HDFC AMC and a 10-20 per cent discount to ICICI AMC and Nippon Life India Asset Management (NAM). Jefferies' target price of Rs 710 is based on 40 times September 2028 estimated OPAT, in line with HDFC AMC's multiple, considering the similar earnings growth profile.

The brokerage said SBI Funds' scale allows it to operate at a lower opex ratio than peers. However, PAT growth is expected to be slower at 13 per cent CAGR as investment assets declined 30 per cent YoY in FY26 due to a one-time interim special dividend of Rs 3,560 crore.

SBI Funds' scheme performance has also been improving, with two to five schemes ranking in the top tiers in 2025/2026, compared with one in 2024. Jefferies expects mutual fund average AUM to grow 13 per cent between FY26 and FY29, with closing AUM growth of 18 per cent. Along with stable yields, this is expected to translate into a 14 per cent revenue CAGR through FY29.

On new opportunities, alternatives accounted for 4 per cent of SBI Funds' FY26 revenue. The asset manager plans to introduce products across portfolio management services (PMS), alternative investment funds (AIFs) and specialised investment funds (SIFs) to expand its presence among affluent customers. In the near term, it plans to enter the "mutual fund-only PMS" category, which has a lower ticket size of Rs 25 lakh, with the aim of scaling it up meaningfully.