Motilal Oswal Financial Services has initiated coverage on SBI Funds Management with a Buy rating and a target price of ₹720 for the company, which has market leadership, a strong distribution network and long-term growth potential.
New Delhi: As newly listed SBI Funds Management Ltd (SBI Funds) shares are in focus after brokerage firm Motilal Oswal Financial Services initiated coverage of the company with a Buy rating and a target price of ₹720 per share. A target of 28% upside is expected after the stock closed at ₹563.80.
Motilal Oswal described SBI Funds as a high-quality asset management franchise with the potential to deliver structural growth for years to come. The brokerage stated that the market leadership of the company and the SBI-backed distribution network, the relatively underpenetrated mutual fund industry, and the company’s strong operating leverage provide a strong base for earnings improvement.
Why Motilal Oswal is Bullish On SBI Funds
One of the reasons for the brokerage’s confidence is that SBI Funds is in a position to operate in India’s rapidly growing mutual fund space.
Motilal Oswal expects MF AUM (mutual fund assets under management) to grow at a 13% CAGR between FY26 and FY28. The brokerage also expects yield development to gradually improve and an increase in revenues from other businesses.
Revenue is expected to grow at roughly 14% CAGR over the period FY26-FY28, and profit after tax (PAT) is projected to grow by around 16% CAGR over the same period.
The brokerage expects SBI Funds to maintain very high profitability and EBITDA margins to be around 81% by FY28, compared to 79% in FY26. This would be driven by operating leverage and cost control.
Motilal Oswal also estimates that the company could generate a return on equity (RoE) of around 51-52%, highlighting the asset-light nature and profitability of the asset management business.
Target Price Of ₹720
Motilal Oswal has initiated coverage with a target price of ₹720 based on a core P/E multiple of 42 times for FY28.
The target is approximately a 28% upside from the closing price of ₹563.80, which the brokerage used.
The positive recommendation comes soon after SBI Funds' stock market debut. The company was listed on July 21 after the IPO of ₹9,795 crore. The NSE shares were listed at ₹613.30 on the NSE (6.85% premium for the IPO transaction price of ₹574).
The IPO itself attracted strong investor demand and was subscribed approximately 41.66 times, according to Motilal Oswal's IPO data.
SBI Distribution Network: A Major Advantage
Motilal Oswal believes SBI Funds benefits from the extensive distribution reach of State Bank of India.
The SBI ecosystem provides the asset manager with a wide customer base and distribution network, potentially helping it deepen its presence in underserved markets as India's mutual fund penetration increases.
The brokerage expects the mutual fund industry as a whole to remain a structural growth opportunity as financial savings increasingly move towards market-linked investment products.
Alternative Businesses Could Add Growth
SBI Funds is, in addition to traditional mutual fund assets, now expanding into other investment lines, as well.
Motilal Oswal highlighted the company’s growing presence across PMS and AIF offerings. The brokerage stated qualified alternative assets under management had increased to around ₹68 billion from ₹39 billion in March 2024, implying that further growth was anticipated.
Institutional PMS may have structurally lower yields, but the brokerage believes the business can help build scale and strengthen institutional relationships. Retail and corporate PMS, along with alternative investment funds, could provide additional revenue opportunities.
Risks Investors Should Watch
Notwithstanding its bullish view, Motilal Oswal has also identified risks in the stock.
The asset management business is still heavily linked to financial market performance. A big market correction might have a bearing on AUM, and thus the company's revenue and profitability.
Other risks mentioned by the brokerage include changes in total expense ratios (TERs), regulatory changes and pressure on yields from active equity products.
For this reason, the brokerage believes in the long-term structural opportunities in the market, and investors need to also be aware of market volatility and the valuation risk.
SBI Funds Stock Outlook
The latest Motilal Oswal coverage adds to a list of positive brokerage opinions on SBI Funds. BofA Securities and HSBC have also initiated coverage with Buy recommendations on the stock. Motilal Oswal's ₹720 target is among the bullish calls on the newly listed stock.
The mutual fund industry in India is expanding, and SBI Funds has a good distribution network; the company is now very popular among investors following its IPO.
But the ₹720 target is a brokerage point of view, not a price level of any kind. Investors should review the company's valuation and AUM growth, earnings trajectory, regulatory environment, and broader market conditions before investing in it.
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