SBI shares likely to rise 30%, says Jefferies; cites these key factors

Shares of State Bank of India (SBI) advanced in Friday's trade after global brokerage Jefferies reaffirmed its bullish stance on the country's largest public-sector lender. Jefferies maintained its "Buy" recommendation on SBI and assigned a target price of Rs 1,300 per share, indicating a potential upside of nearly 30% from prevailing market levels.

The brokerage noted that SBI's ability to preserve its net interest margins (NIMs) will largely hinge on how effectively it reprices its corporate loan portfolio. Based on Jefferies' asset-liability repricing assessment, the bank's deposits are expected to mature and reprice faster than its loan assets. This could lead to a quicker adjustment in deposit rates relative to lending rates, creating potential pressure on margins in the near term.

Despite these concerns, the brokerage remains constructive on SBI's overall earnings outlook, supported by its strong franchise, healthy balance sheet, and long-term growth prospects. 

However, Jefferies continues to maintain a positive stance on SBI, pointing to several structural strengths that support its long-term growth story. The brokerage highlighted the steady improvement in deposits mobilised per branch, reduced dependence on Priority Sector Lending Certificates (PSLCs), rising fee income generated through bancassurance tie-ups, and relatively modest excess provisioning requirements.

While the upcoming shift to the Expected Credit Loss (ECL) accounting framework remains a factor to monitor, Jefferies believes the transition is unlikely to significantly impact SBI's earnings trajectory or alter its broader investment case.

Looking ahead, the brokerage expects SBI to deliver a loan growth CAGR of approximately 13% over the medium term, while generating a healthy return on equity (ROE) of around 14%.

Jefferies also views the bank's valuation as compelling. The stock is currently trading at nearly 1.4 times its estimated FY27 adjusted book value, which the brokerage believes does not fully reflect SBI's strong fundamentals, improving profitability profile, and sustainable growth prospects.