Jefferies Initiates ‘Buy’ on SBI Funds, Targets Rs 710
Jefferies initiates ‘Buy’ on SBI Funds Management Ltd, projecting Rs 710 target price.
Key Highlights
Jefferies initiates ‘Buy’ rating on SBI Funds Management Ltd with a Rs 710 target price, projecting a 26% upside driven by strong AUM growth and SBI partnership.
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%
- (through FY29): 15%
- Mutual Fund 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 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.