Buy This NBFC Stock For Potential Upside of 20% Says Geojit

GEOJIT, a SEBI-registered Research Institution, has recommended a buy call on SBI Cards & Payment Services Ltd., with a target price of Rs 1,325 implying a 20% return over the current market price in a year. The brokerage predicted Rs 1,103 for the stock, which is now trading at Rs 1,084.05.

Q2FY22 performance of the company

According to the research report of the brokerage "For Q2FY22, Interest income declined 8.1% YoY to Rs. 1,173cr; while interest expense also declined slightly by 3.8% YoY to Rs. 254cr. Due to fixed nature of annual credit card fees, income earned from membership continued to grow to Rs. 1,244 (22.1% YoY)."

The brokerage has said "Also, due to growth in spends, receivables increased 12% YoY, over Rs. 26,700cr. The Cost to Income ratio has been high at 56.7%, as against 49.2% for Q2FY21. PAT reached Rs. 345cr, an increase of 67% YoY, as provision for loan losses declined 31.1% YoY to Rs. 594cr."

According to Geojit new accounts of SBI Cards Ltd registered strong growth during Q2FY22, with a spike of 56% at 953,000 as compared to Q1FY22 and new account sourcing through SBI Channel vs. Open Market channels was 47.8%/52.2% in Q2FY22 (38.3%/61.7% in Q1FY22). "Cards-inforce reached 12.5 million, thus helping the company in maintaining its position as the second largest card issuer (market share for Cards in force was at 19.4% as of August 21). GNPA and NNPA as of September 2021 was 3.4% and 0.9% respectively" said Geojit.

Key highlights of the performance of SBI Cards Ltd according to Geojit

• Both retail and corporate spend trends registered a sharp increase of 41% and 80% YoY growth respectively.
• 30-day spend active rate registered a spike to 49.9% (as against 47% in Q2FY21) indicating growth in portfolio and increase in credit consumption.
• Regarding Asset Liability Management, Rs. 6,441cr of sanctioned bank lines remains unutilized and available for draw down as of September 21.
• Net interest income declined 9.3% YoY in Q2FY22 to reach Rs. 919cr due to NIM contraction (-286bps YoY to 14.1%).
• Pre-provision operating profit dropped 7.2% YoY to Rs. 1,058cr, whereas PAT jumped 67.5% YoY to Rs. 345cr, on account of lower provisioning (-31.1% YoY).
• Company added 953,000 new accounts, registered 41% in retail spends, 80% in corporate spends and 12% growth in receivables.

Why the brokerage has set a “BUY” call?

According to Geojit "increased usage of digital payments, growing customer base, and launch of various customer-centric initiatives such as easy EMI repayments at low-interest rates are expected to drive growth in credit card segment. Travel and entertainment-related transactions registered impressive growth during the quarter; this is expected to further rise due to controlled spread of the pandemic and improved vaccination coverage."

The brokerage has reported that "The ongoing festive season will also lead to high consumption trends. We are confident of the growth trajectory, and thus reiterate our BUY rating on the stock with a roll-forward target price of Rs. 1,325 based on 12x FY23E BVPS."

Disclaimer

The above stock has been picked from the brokerage report of Geojit. 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.