BOB Capital Suggests Buy This NBFC Stock For 50% Potential Gains, Expect Earnings Of 32% CAGR

The brokerage firm, BoB Capital Market Ltd, a subsidiary of Bank Of Baroda, has recently published a report on the SBI Card & payments Ltd (SBI Card). It has given a buy rating to the SBI Card for a target price of Rs 1,137. SBI Card boasts a presence in ~3,500 open market points of sale, and has 148 sourcing locations and 35,000+ sales agents. It also has co-branded partnerships with over 10 non-bank entities and 8 banks that use their channels and networks for client origination. Expect earnings to log a 32% CAGR over FY22-FY25, aiding +6% ROAA and +26% ROAE in the medium term.

Stock Overview

SBI Card's stock opened today at Rs 773.85, Currently, it is trading at Rs 762.65, the current market price (CMP). According to the given target price of Rs 1,137 and CMP, the stock could jump by 50% in a 12-month investment term. While looking at the given data on NSE, the SBI Card's shares ahs price has fallen nearly 27% in the last one year. However, in the last one month, it has managed to regain the decline and gained almost 3%. The previous 1 week was not so promising for the stock as it witnessed a downside. Last month, on 13th May, it touched its new 52 week low at Rs 710.80. The stock hit the 52-week high level on 1 September 2021 at Rs 1,165.

CMP	Target Price	Potential Returns
Rs 762.65	Rs 1,137	50.00%

SBI Card's partnership with its parent State Bank of India (SBI) gives it the benefits of SBI's vast network, cheaper customer acquisition cost, better asset-quality clients and strong cross-sell opportunities. The company's strategy to expand into tier-2/3 cities should spur growth, with SBI having the highest network reach among banks in these markets.

Return ratios healthy

Credit cards are a high-margin business and SBI Card earned an average ROAA/ROAE of 4.6%/29% for FY16-FY20. Amid Covid, these ratios fell to 3.8%/16.9% in FY21 before rebounding to 5.2%/23% in FY22. The brokerage said, "We expect ROAA of 6%/6.4% and ROAE of 26.2%/26.9% in FY23/FY24 as the pandemic impact ebbs."

NIM on path to recovery

SBI Card was consistently generating 15%+ NIMs but in FY22, NIM contracted to ~13% owing to a lower share of revolving accounts in the receivables mix. "We believe that as economic activity revives, the share of interest-earning EMI and revolver accounts in the receivables mix will grow over the next 2-3 years, supporting better margins of ~14.5% by FY25," the brokerage has said.

 

Asset quality improving

The company's credit cost averaged 6% during FY16- FY19. This increased during the pandemic to 9.5%/11.4% in FY20/FY21, before ending lower at 8.4% in FY22. "We expect credit cost to decline further to 7.7%/7.2%/ 7% for FY23/FY24/FY25. GNPA averaged 2.4% over FY17-FY20 and net NPA 0.8%. Although GNPA rose to 5.0% in FY21, it tapered to 2.2% in FY22," the brokerage has said.

Bob Capital Suggests Buy for a target price of Rs 1,137

SBI Card is trading at attractive valuations of 24x FY24E EPS. We value the stock at 36x FY24E P/E- this yields a Target Price of Rs 1,137, implying a potential upside of 47%. Our residual income model assumes COE of 11.8% and a terminal growth rate of 5.5%. 

SBI Card & Payment Services Ltd

SBI Cards and Payment Services Limited is a non-deposit accepting systemically important non-banking financial company registered with the RBI. The Company is engaged in issuing credit cards to consumers in India. It is headquartered in Gurgaon, Haryana. It is a subsidiary of India's largest commercial bank, the State Bank of India. SBI Cards and Payment Services Ltd's key Products/Revenue Segments include Interest, Fees & Other Charges, Other Services, Service Charges, Commission and Income From the Sale Of shares & Securities for the year ending 31-Mar-2021. It has a market cap of Rs 72,149 crore.

Disclaimer

The stock has been picked from the brokerage report of BoB Capital Market Ltd. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decisions.