Jefferies Initiates ‘Buy’ on SBI Funds, Targets Rs 710

Jefferies has initiated coverage on SBI Funds Management Ltd with a “Buy” rating, projecting a target price of Rs 710. This indicates a potential 26% upside for the stock, driven by an anticipated 15% compounded annual growth in operating profit through FY29.

Key Financial Projections

• Target Price: Rs 710
• Potential Upside: 26%
• Operating Profit CAGR (through FY29): 15%
• Mutual Fund AUM Growth: 18%

The brokerage’s target price is derived from 40 times the estimated operating profit after tax (OPAT) for September 2028, mirroring HDFC AMC’s valuation given a similar earnings growth trajectory. SBI Funds benefits significantly from its exclusive partnership with State Bank of India, which contributes 35% to its equity AUM, a figure substantially higher than its competitors. This collaboration facilitates expansion in retail deposits and ensures lower distribution costs at 65 basis points, compared to 68-69 basis points for other banks.

Currently, SBI Funds trades at 37 times its September 2027 estimated operating profit. This valuation represents a 5% discount to HDFC AMC and a 10-20% discount when compared to ICICI AMC and Nippon Life India Asset Management (NAM). Despite a slower projected PAT growth of 13% CAGR, influenced by a one-time interim special dividend of Rs 3,560 crore in FY26, the company’s substantial scale allows it to maintain a lower operating expense ratio than its rivals.

Jefferies forecasts a 13% growth in mutual fund average AUM between FY26 and FY29, with closing AUM growth reaching 18%. This translates into a 14% revenue CAGR through FY29. The asset manager is also expanding its offerings for affluent clients, with alternative investments constituting 4% of its FY26 revenue.

Expanding Product Portfolio

• Plans to introduce products across portfolio management services (PMS), alternative investment funds (AIFs), and specialised investment funds (SIFs).
• Aims to enter the “mutual fund-only PMS” category.
• New PMS category features a lower ticket size of Rs 25 lakh to broaden market presence.

The performance of SBI Funds’ schemes has shown marked improvement. The number of top-tier schemes is expected to rise from one in 2024 to between two and five in 2025/2026. This indicates a strengthening competitive position within the asset management sector.