PSU Stock To BUY! SBI To Raise Rs 20,000 Crore Long Term Bonds; Largest PSB Stock To Cross Rs 1,000 Mark Soon?

India's largest public sector bank, State Bank of India (SBI) has announced the raising of long-term bonds to the tune of a whopping Rs 20,000 crore. Accordingly, SBI share price will be in focus. SBI stock has performed stable in 2024 with year-to-date gains around 13.3% on BSE. The stock is currently a little over Rs 850 apiece. But brokerage Nirmal Bang expects SBI stock to cross the Rs 1,000 mark.

In its regulatory filing on June 19, SBI announced that " the Central Board at its meeting held today i.e. 19th June 2024 has, inter alia, accorded approval for raising long-term bonds to an amount of Rs. 20,000 crore."

The long-term bonds will be issued via public or private placement, during FY25.

At the time of writing, SBI share price traded at Rs 850.55 apiece, marginally down in the opening bell of Thursday. Its day's high and low is at Rs 853.95 and Rs 848.75 respectively. Market cap is above Rs 7.58 lakh crore as of now.

This announcement comes after SBI announced to examine the status and decide on long term fund raising in single / multiple tranches of up to US$ 3 Billion (US$ Three Billion) under RegS/144A, through a public offer and/or private placement of senior unsecured notes in US Dollar or any other major foreign currency during FY 2024-25.

In its latest report, Nirmal Bang pointed out that SBI continues to have a leadership position across retail and wholesale segments with a market share of 21-63% across key business verticals. As per its strategy document for FY25-FY29, the focus is on (1) Strengthening customer relationships and engagements (2) Reducing the cost of deposits (3) Increasing profitability and (4) Strengthening risk management and governance.

Nirmal Bang highlighted tat to cement its leadership position in the digital banking space, SBI has been continuously focusing on being customer-focused, digital, competitive and agile, combining the convenience of digital banking with a human touch. All the investments made by the bank in the digital & technology space over the past several years have now started yielding benefits in terms of driving financial inclusion, enhancing customer experience, optimizing resource efficiency and promoting sustainability. Further, to keep pace with the evolving digital banking ecosystem, the bank is in the process of developing the next-generation technology platform 'Only YONO - The New Digital Bank' (YONO 2.0) with certain key capabilities such as a consistent Omni channel experience across all digital channels, hyper-personalized customer experience, AI-based models for business, preventive risk management, etc.

Accordingly, Nirmal Bang expects SBI's PAT to clock a CAGR of 16.6% over FY24-FY26E, which will be supported by a 15.2% CAGR in loan growth, stable margins, improved cost ratios and credit cost of 50bps. This will lead to RoA/RoE of 1.1%/17.8% in FY26E.

On the valuation, Nirmal Bang said, "We have valued SBI at 1.6x March 2026E ABV + subsidiary value per share of Rs237.9, thus deriving a target price (TP) of Rs1,003. We are positive on SBI for the long term considering the bank's leadership position in Corporate and Retail lending (which enables it to choose the best quality credit), ample liquidity on the balance sheet (providing stability to its margins) and pristine asset quality. We maintain BUY on SBI."