This Large Cap Financial Stock Gets Buy Call For 35% Gains, Reported Strong +23% YoY PPOP Growth

HDFC Securities in its research report on SBI Cards & Payment Services Limited published on July 29, has given a buy call for an estimated target price of Rs 1,265 apiece for the stock of the company. According to the brokerage, if the investors buy the shares of the company at the Current Market Price-the Friday's closing price- they could expect potential gains of 35% in 12 months. SBI Cards & Payment services is a large cap company engaged in credit cards & allied businesses. It has a market capitalization of Rs 88,595.90 crore.

Stock Outlook & Returns

The stock of the company, on Friday, closed at the Current Market Price (CMP) of Rs 939.25 apiece after gaining 0.74% from the previous close of Rs 929.15 apiece.

The stock hit the 52-week low on June 20, 2022, at Rs 655.70 apiece. The 52-week high was recorded on September 01, 2021, at Rs 1,165 apiece. Its ROE is 20.84%. PE ratio is 54.83 and the PB ratio is 11.43. TTM EPS is Rs 17.13. The dividend yield is 0.27% and the face value is Rs 10.

Last week, the shares of the company moved up by 6.93% and 21.07% in 1 month, respectively. However, its share price has fallen nearly 7.69% in the past 1 year.

Unit spends drive strong earnings profile

SBI Cards reported strong PPOP growth (+23% YoY) on the back of healthy fee income (+42% YoY) and improving cost efficiency. Unit spends grew +54% YoY, with the addition of new categories (rent, school fees, etc.), and sustained traction in corporate card spends (24% of total spends).

Gradual traction in balance sheet re-leveraging

The share of revolve in the loan mix increased marginally QoQ from 25% to 26% (Q1FY22: 29%), helping arrest NIM compression. Re-leveraging of the cards portfolio has been slower than expected, reflecting consumers' conservative approach to credit after the pandemic-we expect the share of revolve to improve to 33% by Mar-24.

Reversion to steady state to drive high return ratios

SBI Cards delivered RoA/RoE of 7/31% in Q1FY23 despite muted NII due to strong traction in unit spends and lower credit costs. With gradual re-leveraging of the portfolio, SBI Cards is poised to deliver >6% sustainable RoA by FY24 (better quality of earnings). While we ascribe a low probability to the RBI capping credit card MDRs (an overhang on the stock), we believe that SBI Cards has levers to offset its profitability in case of unfavourable regulations.

Strong performance; nearing steady state, Buy for target price of Rs 1,265 apiece

According to the brokerage, SBI Cards reported a strong set of numbers, driven largely by a surge in spends (spends per card up 7% QoQ) and benign credit costs (net credit costs at 4% as COVID-related stress is largely over), leading to 7%/31% RoA/RoE. Business momentum continued to gain traction in terms of CIF (+19% YoY), unit spends (+54% YoY, 7% QoQ) and unit receivables (+14% YoY), driving stronger fees (+42% YoY). Share of revolving loans (26%) witnessed marginal uptick after the steep drop during COVID (38% to 25%), indicating portfolio re-leveraging, which in turn is likely to drive NIM reflation (13.2%). As per management, credit cards on UPI are likely to have a positive rub-off on the credit cards industry and SBI Card (~7% of CIF at RuPay network), although the operational guidelines are awaited.

The brokerage said, "We tweak our FY23/FY24 earnings estimates by 1/2% to factor in better-than-expected traction in card spends, partially offset by lower than-expected NIM reflation and maintain BUY with a revised target price of Rs 1,265 (38x FY24 EPS)."

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. 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 check with certified experts before taking any investment decision.