Stock To Buy: This Largecap Financial Stock Can Give Aggressive 60% Return

Brokerage firm Yes Securities recommends investors buying the stocks of SBI Cards and Payment Services. Higher acquisitions from Tier-3 & beyond locations and of self-employed customers mainly through SBI channel, are expected to drive revolvers' share recovery along with the consistent increase of discretionary spends.

Target Price, Current Market Price, and Company Performance

The Current Market Price (CMP) of SBI Cards is Rs. 785. Yes Securities has estimated a Target Price for the stock at Rs. 1260. The stock has potential to give a 60.50% return, in the upcoming 1 year. This is a large-cap company with a market capitalization of around Rs. 69,007 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 785
Target Price	Rs. 1260
Potential 1 year return	60.50%
52 week high share price	Rs. 1,165.00
52 week low share price	Rs. 710.80

The company's Income from Operations in FY22 was recorded at Rs. 106,773 m, which is expected to be at Rs. 127,241 m in FY 23. Their Net interest income in FY22 stood at Rs. 96,500 m, which is expected to be at Rs. 113,414 m in FY 23. The company's net profits in FY22 was recorded at Rs. 16,162 m, which is expected to be at Rs. 21,282 m in FY 23.

On the Asset Quality & Credit Cost ground, the company's GNPL (2.3%) and ECL (3.3%) is currently at pre-Covid level; thus, reversion to pre-pandemic credit cost of around 6.5% not a challenge then - efforts are also towards optimizing the credit cost by actively managing the quality of acquisition (learning from the mistakes).

Yes Securities comments: stock advantages and risks

According to Yes Securities, "We estimate 20-22% CAGR in CIF and Receivables over FY22-24. Despite modelling 25 bps MDR reduction (partial recoup through opex), we estimate RoA/RoE to be 5.5-6%/24-26% which was the pre-pandemic metric (adjusted for capital base). We believe that stock price represents overstretched concerns on MDR reduction and lack of flexibility to recoup it, structural pressure on cost-income/profitability from increased competitive intensity, impact on growth from rising scale of the new-age card cos. and BNPL. Being the only listed pure-play credit card issuer with significantly higher profitability than Banks and NBFCs (in good times as well as bad times), SBI Cards would continue to command a premium valuation. The customers onboarded during FY22 have been less risky as the co. gradually opened its appetite for relatively riskier profiles/segments - there was a corresponding impact on the receivables mix (revolvers' share kept low)."

Company profile

SBI Card was launched in October 1998 by the State Bank of India and GE Capital. Incorporated as SBI Cards and Payment Services Private Limited (SBICPSL), SBI Card is headquartered in Gurgaon, Haryana. Within a short span of 10 months from inception, they have achieved a credit card customer base of 1 lakh. They entered the '1Million Card Club' in 2002 and crossed the 2 million card base in 2005. They are the second largest credit card provider in the country, with a base of over 13 million cards in force. Company would like to maintain a balance in sourcing between open market and SBI channel. About 20-25% of banca sourcing is from the YONO App - co. Runs programs/engagements with Flipkart a few times during the year; mainly during the festival periods.

Disclaimer

The above stock was picked from the brokerage report of Yes 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.