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SBI card shares rise 3%; Motilal Oswal upgrades stock to 'buy', Morgan Stanley, Prabhudas Lilladher also positive

A week ago, global brokerage firm Morgan Stanley initiated coverage on SBI Card with a target price of Rs 1,300.

March 18, 2021 / 11:39 AM IST
 
 
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A day after suffering a loss of more than 4 percent, shares of SBI Cards and Payment Services rose 3 percent in intraday trade on BSE on March 18.

Shares of the country’s second-largest credit card firm were under pressure on March 17 after private equity firm Carlyle sold around 4 percent stake to raise around $513 million, according to a deal term sheet viewed by Moneycontrol.

However, the stake sale by Carlyle has not been seen as a negative and brokerages have maintained their positive view on the stock.

Brokerage firm Motilal Oswal Financial Services upgraded the stock to "buy" on March 17 with a target price of Rs 1,200.

The broking firm, in its earlier report, had highlighted the structural growth story and the unique play on rising retail credit that has been offered by the company.

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The company has strengthened its position as the second-largest card player in India, with a market share of about 19 percent in outstanding cards and nearly 20 percent in overall spending. It has an outstanding card base of nearly 11.5 million and has doubled its card base over the past three years at an average incremental market share of 23 percent, Motilal Oswal said.

"The stock is trading at 35 times FY23E earnings, which is attractive given its strong fundamentals, earnings growth, and long-term structural story. At the current market price, the stock offers nearly 23 percent upside to our unchanged target price of Rs 1,200 (43 times FY23E EPS)," Motilal added.

Brokerage house Prabhudas Lilladher is also positive on the stock despite the stake sale.

"We have been covering stock since the time of listing day and we have remained positive pretty from day one. Primarily reasons being one - even during pandemic we have seen SBI Card acquiring new customers from the parent itself which helps in serving incremental delinquencies," CNBC-TV18 reported, quoting Shweta Daptardar, a Research Analyst at Prabhudas Lilladher.

"Secondly, the scarcity premium associated with the names has always helped maintain this high valuation range. Going forward as India prepares for the higher digital penetration we believe credit card players have a bigger role to play," Daptardar said.

A week ago, global brokerage firm Morgan Stanley initiated coverage on SBI Card with a target price of Rs 1,300.

As reported by CNBC-TV18, Morgan Stanley is of the view that SBI Card is a pure play on the unsecured consumer finance opportunity in India.

"SBI Card is a pure play on unsecured consumer finance, a high-growth and the most profitable–space in India credit. The payments/fintech wrapper makes for an intriguing narrative. Its parentage mitigates tail risks and provides a large growth base that should support its steep valuation," Morgan Stanley said.

With spends largely normalising in Q3F21, Morgan Stanley expects strong growth in spends and loans in F22 and F23.

"Driven by strong PPOP CAGR and meaningful credit cost normalization, we forecast a more than 60 percent EPS CAGR, F21-23, and an ROE of about 30 percent by F23," the global financial firm said.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Nishant Kumar
first published: Mar 18, 2021 11:39 am

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