Buy SBI Cards and Payment Services; target of Rs 986 : ICICI Securities

ICICI Securities research report on SBI Cards and Payment Services

SBI Cards (SBIC) reported QoQ PPOP growth of 6% but 14% higher credit cost led to flattish PAT of INR 5.9bn in Q1FY24. While earnings growth has faced challenges of adverse change in mix (delay in revolver build up post covid), higher cost of funds (rate hikes), higher opex (BNPL competition), regulatory challenges (RBI master circular) and higher credit costs including a long-tailed impact of covid (as seen from ~14bps impact from a FY19 cohort in Q1FY24), it has still reported 27% earnings CAGR over the last 5 years ending FY23. Additionally, these challenges are largely behind the company as reflected in valuations, which have halved in past two years (current valuations indicate 26x FY25E earnings). Expectations of NIMs having bottomed out are realistic due to cost of funds peaking out, gradual increase in higher-yielding EMI cohorts as well as growth in revolvers (revolver outstanding has grown at an average rate of 25% YoY in the past 5 quarters).

Outlook

Maintain BUY with a revised target price of INR 986 (earlier INR 953) based on 30x (unchanged) FY25E earnings (rolled over from Sep'24) Considering SBIC’s RoA/RoE of ~5%/23%, valuation remains attractive.