We hosted SBI Cards' Management in our High Conviction Ideas Conference and the takeaways were reassuring on concurrent and expected trends in card addition/mix, spend growth/mix, revolvers' share, competitive landscape and credit cost. Co. is confident about maintaining the card sourcing run-rate demonstrated in past two quarters while would not chase market share at the cost of risk or profitability. Higher acquisitions from Tier-3 & beyond locations and of self-employed customers is mainly through SBI channel. This would drive Revolvers' share recovery along with the consistent increase of discretionary spends. Less-risky customers onboarded during FY21-22 and portfolio construct/ECL coverage being at pre-pandemic level offers visibility on prompt normalization of credit cost. Cost/income ratio is expected to remain at 56-57% in the near term, with scale and digital benefits mitigating increased intensity of spend-related cost.
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 a) MDR reduction and lack of flexibility to recoup it, b) structural pressure on cost-income/profitability from increased competitive intensity, c) 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. Reiterate BUY with 12m PT of Rs1260.
Shares of SBI Cards and Payment Services Limited was last trading in BSE at Rs. 769.60 as compared to the previous close of Rs. 770.90. The total number of shares traded during the day was 24029 in over 1778 trades.
The stock hit an intraday high of Rs. 777.55 and intraday low of 758.55. The net turnover during the day was Rs. 18458992.00. |
