Buy SBI Cards; target of Rs 1000: Emkay Global Financial

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26 Aug, 2025 12:21

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Emkay Global Financial's research report on SBI Cards

Notwithstanding Covid-induced disruptions and rising competitive intensity from alternate payment/credit products, India's CC-base doubled to 74mn in Mar-22 from 37mn in Mar-18, and now stands at a high 79mn (active base). Cumulative-spends (7MFY23) growth is at 58% YoY (albeit on a low base), indicating strong underlying growth currents. We expect overall industry CIF CAGR of 17% and spends to post a near pre-Covid CAGR of 32% in FY22-25E (33% CAGR in FY15-19). SBI Cards [SBIC] is India's 2nd-largest credit-card [CC] issuer, with 19.1% market share of active cards-in-force [CIF] as of Oct-22, and ranks 3rd in terms of spends, with 18% market share. We expect SBIC to log a strong CIF CAGR too, at 18%, and spends CAGR of 30% in FY22-25E, thus largely upholding its market share. Beyond FY25, we expect SBIC to maintain spends-share at ~18%, and clock FY25-35E CC-spends CAGR in the mid-to-high teens. Further, despite the likely continued moderation in interchange fees (ICF), we see RoE staying resilient for SBIC at 25-26% over the cycle, based on >5% RoA (aided by operating leverage) and normalized LLPs (6.2% of loans), with upside risk from higher (>5x) leverage.

Outlook

Nonetheless, our Mar-24 TP of Rs1,000/share, with an upside of 22% (based on the Excess Returns model), assumes a terminal P/B of 2.2x in Mar-35E (6.3x FY25E ABV), consistent with the 20% incremental RoE and 7.5% growth in excess profits. Key downside risks to our TP: continuous erosion in SBIC's spends market-share; regulatory cut in MDR/ICF. Our worst-case scenario (Regulator cutting ICF to 100bps from FY26E and gradual reduction thereafter) yields a Mar-24E FV of Rs690 (implying 16% downside), though we see such a large-cut as unlikely. We initiate coverage on SBIC with a BUY.

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SBI Cards - 01 -12-2022 - emkay