Buy SBI Cards For A Target Of Rs. 993 For 2 Quarters: HDFC Securities

Buy SBI Cards for a target of Rs. 993

HDFC Securities has suggested investors to buy the stock of SBI Cards for 2 quarters. At the current price of Rs. 829.25, this would imply a potential upside of 19.75%.

Brokerage's take on SBI Cards

SBI Cards is the second largest and only listed credit card issuing company. Through its smart customer acquisition strategy, balanced revenue mix as well as stringent risk management, the company has emerged as a unique franchise generating high return ratios. Also, the Covid 19 pandemic didn't spoiled the company's performance way too much, despite it being in unsecured lending.

The brokerage is of the view that from here on high margin segments like travel and entertainment related spends should pick up. "The increasing share of revolve in the loan mix with improving spends traction is likely to drive the per card profitability for
SBI Cards. However credit card players are prone to some of the longer-term category
disruption risks from UPI, BNPL, and potential regulations on Merchant Discounting Rate (MDR) cap", notes the brokerage.

Q3FY22 Result

The company has shown resilience in the December ended quarter. NII growth during the quarter came at 10% YoY and 8.4%
QoQ while total revenue of the company grew by 25% YoY. SBI Cards reported healthy PPOP growth of 23% YoY on the back of strong other
income (+36% YoY). High opex (+28% YoY) was driven by higher account additions, marketing campaigns, and tech investments to scale up
and further digitise the customer acquisition engine. Cost to income ratio came at 60%, up 90bps. The company has reported net earnings
growth of 84% YoY and 12% QoQ. Net Interest Margin for the quarter remained slightly under pressure at 14%, down 49 bps YoY.

Long term triggers

The company has drawn unparalleled support from the parent company, SBI on financial, managerial and branding fronts. The bank itself is into cross selling credit cards of SBI Cards. Also, due to its strong parentage, the company enjoys high credit rating.

Under penetrated credit card market offers huge opportunity of growth

Though the credit card market in India has witnessed healthy growth still it lags by a significant amount which needs to be tapped. As per the data, average card ownership per 100 people in India is just 4, signifying huge potential to augment credit card penetration in the country.
"Improvement in payment
infrastructure (POS and BQR terminals has seen over 2.5X growth in last 3 years) and change in consumer behavior like preference for
digitization in payments, credit acceptance, shopping via e-commerce mode etc. are the key structural changes that should help the credit
card industry grow at a robust pace", notes the brokerage.

Balanced Revenue mix

The company's revenue mix is equally divided between fee-based and interest income. There are various arrays of fee income
such as spends-based fees, subscription fees, instance-based fees, service charges and business development incentive income. This
brings stability in the company's revenue as fee based income is less susceptible to market fluctuations, such as interest rate volatility etc.

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. 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.