Brokerages back SBI Funds despite shares slipping below IPO price
SBI Funds Management shares have dropped below their IPO price, but analysts say the stock's high margins and untapped distribution network offer strong long-term upside.
SBI Funds Management shares have fallen below their issue price of Rs 574. The drop follows a heavily oversubscribed July 21 debut that saw the stock list at a 7% premium. The Rs 9,813-crore public issue was booked 41.66 times overall, driven primarily by institutional buyers.
Despite the pullback, brokerages are urging investors to buy the dip. Emkay Global initiated coverage with a "Buy" rating, setting a target price of Rs 750 for June 2027. This implies a 30% upside from the IPO price. Equirus also issued a "Long" recommendation with a Rs 675 target for March 2027.
The bullishness rests on exceptional profitability and operating leverage. For the fiscal year ended March 2026, SBI Funds reported revenue of Rs 4,389.5 crore. Revenue grew at a 25% compound annual growth rate over FY21-FY26, outpacing operating expense growth of 15%.
This operational efficiency pushed EBITDA margins to 79% and net profit margins to 70%. The asset-light model generated a return on equity of 42.8% for the year. Equirus expects profit after tax to rise to Rs 4,414 crore by FY29.
Analysts point to the company's systematic investment plan (SIP) book as a key competitive advantage. SBI Funds manages 16.2 million live SIPs with monthly inflows of Rs 40.6 billion. Over 97% of these SIP folios have persisted for more than 37 months, providing a sticky revenue stream that reduces reliance on market timing.
The firm's parent bank provides a formidable distribution moat. SBI Funds manages 96% of the mutual fund assets mobilized through SBI Bank, which drove over Rs 250 billion of net inflows in FY25. Analysts noted that SBI Funds currently serves just 5.5 million customers, compared to the 21 million salary account holders at the parent bank.
This gap highlights a broader structural opportunity for the Indian market. Mutual fund assets represent just 31% of bank deposits in India, trailing the US at 216% and the UK at 48%. Furthermore, mutual funds account for only around 12% of household savings.
Emkay projects SBI Funds will achieve 17% AUM growth and a 16% revenue CAGR through FY29. A shift toward higher-yielding equity and alternative investment funds, combined with scale benefits, is expected to push EBITDA margins to 81% by the end of that period.
