Stock To Buy: SBI Cards Q2 Net Profit Gains By 52%, Stock Can Give 38% Near-term Profit

Top brokerage firm BOB Capital has given a buy rating to the stock of SBI Cards. Its Q2 net profit rose 52% YoY to Rs. 5.3bn. Additionally, SBI Card's Q2 credit card spending grew 43% YoY to Rs. 623bn, boosted by festive season e-commerce sales in the last week of September. Its Retail constituted 82% share that grew 45% YoY.

Stock To Buy: Target Price

The Current Market Price (CMP) of SBI Cards and Payment Services Ltd. is around Rs. 826.45. BOB Capital has estimated a Target Price for the stock at Rs. 1139. This stock has the potential to give a 37.89% return, in the upcoming 1 year. It is a large-cap stock with a market capitalization of around Rs. 78,123 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 826.45
Target Price	Rs. 1139
Potential Upside	37.89%
52-week high share price	Rs. 1,130.90
52-week low share price	Rs. 655.70

Strong Earnings

SBI Card's Q2FY23 net interest income (NII) at Rs.11.1bn was in line with the brokerage firm's expectations, but management expects the full effect of higher funding costs to reflect in Q3. Revolvers at 24% share of the receivables mix remained low, keeping NIM under pressure. Non-interest income grew 29% YoY to Rs. 18.1bn and total revenue increased 28% YoY to Rs. 34.5bn. The company's cards in force grew 18% YoY to 14.8mn (19.1% market share at end-Sep'22) with new account additions up 36%.

Stock Valuation:

Retaining buy rating, BOB Capital said, "We lower EPS estimates by 6-12% over FY23-FY25 to factor in higher expenses and funding costs leading to a revised TP of Rs. 1,139. Our target price reflects an unchanged FY24E P/E of ~36x, 1SD below the long-term mean. The stock is currently trading at an attractive valuation of 27x FY24E P/E. We retain buy for a potential upside of 33%"

Strong asset quality

GNPA/NNPA remained stable at 2.1%/0.8% at end-Q2FY23, and we expect levels of <3%/~1% over FY23-FY25. Although credit cost was higher than expected in Q2, we anticipate a climbdown in coming quarters as ECL (expected credit losses) remained lower than pre-Covid levels. We bake in credit cost of ~6% over FY23-FY25 vs. our earlier forecast of 6.5-7.0%.

Disclaimer

The above stock was picked from the brokerage report of BOB Capital. 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.