Emkay Global Picks Large Cap Stock From BFSI Sector, Sees Robust Returns Upto 40%, Buy

Emkay Global recommended investors to "Buy" the stock of SBI Cards & Payment Services Ltd. with Rs 1,000 apiece. Given the target price, if you buy the stock at the current market price, it is likely to give returns up to 40% in 12 months. SBI Cards is an SBI Group's large-cap company that operates in the Cards & Allied Services. It has a market capitalisation of Rs 67,627.02 crore.

SBI Cards Stock Performance

The share price of the SBI Cards last traded at Rs 715.10 apiece on NSE, down 4.01% from its previous close of Rs 745 apiece. The stock is trading 9.09% away from its 52 week low, which is Rs 655.70 apiece. The stock's 52 week high is Rs 1,028.65 apiece. It was listed on 16 March 2020.

Since its date of listing it has given 4.95% positive returns. The stock has fallen 6.54% in the past 1 week, 7.28% in 1 month and 15.36% in the past 3 months, respectively. It gave 15.87% negative returns in the past 1 year. 

Margin slip, higher opex hurts profitability

SBI Cards (SBIC) reported a miss on PAT at Rs5.1bn (vs our est. of Rs5.5bn) and hence a slip on RoA to 4.8% (vs 5.4% in 2Q), mainly due to lower margin, fees and seasonally higher opex. Lower fees (in line with expectations) at 15% YoY/4% QoQ, mainly due to lower instance-based penal fees, including 'Over limit' at Rs0.9bn, as per the RBI's dictum. 

SBIC clocked the highest-ever new card addition at 1.6mn (CIF@15.9mn), leading to slight improvement in CIF market share (up 20bps QoQ) to 19.3%. Spends growth moderated to 24% YoY on a higher base, but was strong 10% QoQ. Overall receivables growth moderated to 33% YoY/2.4% QoQ due to stubbornly-lower revolve rate at 24%. Thus, lower revolve rate and higher CoF led to further margin decline to 11.6% (vs 12.3% in Q2). 

Overall stage 3 assets inched-up a bit to 2.2% of loans in 3Q, while the net stage 2 assets pool further declined to 6.1% of loans. Thus, SBIC believes that the underlying asset quality remains in a comfortable zone. As per Management, Gross/Net LLP has trended down to 5.6%/4.2% and should continue declining ahead, partly supporting profitability. 

Emkay Global Recommends "Buy" The Stock WIth Rs 1,000 Target Price

The brokerage said, "Factoring-in the margin, fee and opex impact, we trim our earnings estimates for FY23/24/25 by 10%/3%/1%, respectively. However, we expect SBIC to still deliver a healthy RoE of 25-26% over FY23-25E, partly led by improving leverage. We retain BUY, with a TP of Rs1,000/share, based on the ERE model, implying 6.7x Dec-24 P/ABV and 29x PER. Key downside risks to our TP: Sharp erosion in SBIC's spends growth/market share and industry-wise regulatory cut in MDR/ICF."

Disclaimer

The stock has been picked from the brokerage report of Emkay Global. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.