Accumulate SBI Cards and Payment Services; target of Rs 1013: Prabhudas Lilladher

Prabhudas Lilladher's research report on SBI Cards and Payment Services

SBICARD reported average set of Q2’23 numbers (PAT at Rs 5.2bn down 16.2%QoQ up 52.4%YoY) below our estimate of Rs6.7bn due to higher than expected provisions and opex. Receivables at Rs377bn (PLe: Rs355bn) grew healthy 13.6%QoQ/41.4%YoY, opex increased by 10.3%QoQ and rose by 32.6%YoY leading to cost-income rising to 59.4% from 56.3% in Q1’23. Yields fell (decreased to 16.4% from 17.1% in Q1’23) as higher yielding revolver mix decreased to 24% from 26% in Q1’23 of overall receivables. Asset quality improved marginally with GNPAs at 2.1% vs 2.24% in Q1FY23. Credit costs rose sequentially to 5.6% vs 5.0% in Q1’23 as impairments and losses increased sequentially by 21% to Rs5.46bn. Retail spends continue to stay robust came in at Rs 508.95bn up by 11.9% on a QoQ basis. Corporate spends saw a 19.5% fall sequentially and came in at Rs114.11bn as company decided to review its corporate spend strategy and exited certain low margin accounts. Management has stated that share of corporate spends will improve to historical range but in a recalibrated manner. Going forward, we believe credit costs pressures are expected to recede (4-4.5% from current 5.6%) as recoveries improve post festive season. Operating expenses are expected to rise as sourcing costs go up with increased competition (200-300bps rise in cost-income over FY22-24 to 60%). We foresee strong fees traction (20%CAGR between FY22-24) due to increased retail spends thanks to festive season. Improving asset quality trends leading to lower credit costs to compensate for growing cost pressures especially led by competition & regulatory hindrances. After incorporating above thesis our FY23 and FY24 EPS estimates stand below by 7.5% and 6.2% respectively.

Outlook

We maintain ‘ACUMULATE’ rating on the stock as SBICARD maintains high return profile (5.4%+RoA/ 24%RoE) with 39% EPS CAGR over FY22-24. Our valuation multiple at 34x PE Sep’24E results into TP of Rs1,013 from earlier target price of Rs1,087

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