This large-cap financial stock gets a buy call for 35% gains, saw strong PPPP growth of +23% YoY

Outlook and stock returns

The company’s stock on Friday closed at the current market price (CMP) of Rs 939.25 each after gaining 0.74% from the previous close of Rs 929.15 each.

The stock hit a 52-week low on June 20, 2022, at Rs 655.70 each. The 52-week high was recorded on September 01, 2021, at Rs 1,165 coin. Its ROE is 20.84%. The PE ratio is 54.83 and the PB ratio is 11.43. TTM EPS is Rs 17.13. The dividend yield is 0.27% and the face value is Rs 10.

Last week, the company’s shares rose 6.93% and 21.07% respectively in 1 month. However, its share price has fallen nearly 7.69% over the past year.

Unit spend drives strong revenue profile

Unit spend drives strong revenue profile

SBI Cards saw strong PPOP growth (+23% YoY) driven by healthy commission revenue (+42% YoY) and improved profitability. Unit spend was up +54% YoY, with the addition of new categories (rent, tuition, etc.) and continued traction in corporate card spend (24% of total spend).

Gradual pull in balance sheet re-leveraging

Gradual pull in balance sheet re-leveraging

The share of renewables in the loan mix increased slightly quarter-on-quarter from 25% to 26% (Q1FY22: 29%), helping to stop NIM compression. Card portfolio re-leveraging has been slower than expected, reflecting consumers’ conservative approach to credit post-pandemic – we expect turnover share to improve to 33% by March 24.

Return to steady state to generate high rates of return

Return to steady state to generate high rates of return

SBI Cards generated RoA/RoE of 7/31% in Q1FY23 despite moderate NII due to strong unit spend traction and lower credit costs. With gradual portfolio re-leveraging, SBI Cards is on track to deliver >6% sustainable ROA by FY24 (better earnings quality). While we assign a low probability for the RBI to cap credit card MDRs (a surplus over stock), we believe that SBI Cards has leverage to offset its profitability in the event of unfavorable regulation.

Solid performance;  approaching steady state, buy for a target price of Rs 1,265 each

Solid performance; approaching steady state, buy for a target price of Rs 1,265 each

According to the brokerage, SBI Cards reported a strong set of numbers, primarily due to higher spending (card spending up 7% quarter-on-quarter) and mild credit costs (costs net loans at 4% as COVID stress is largely over), leading to 7%/31% RoA/RoE. Commercial momentum continued to gain momentum in terms of CIF (+19% YoY), unit spend (+54% YoY, 7% QoQ) and unit receivables (+14% YoY ), resulting in higher commissions (+42% YoY). The share of revolving loans (26%) saw a slight uptick after the sharp decline during COVID (38% to 25%), indicating portfolio releveraging, which in turn is likely to boost NIM reflation (13, 2%). According to management, credit cards on UPI are likely to have a positive impact on the credit card industry and the SBI card (~7% of CIF on the RuPay network), although operational guidelines are awaited.

The brokerage said: “We are adjusting our FY23/FY24 earnings estimate by 1/2% to account for better than expected traction in card spend, partially offset by weaker than expected NIM reflation and maintain BUY with a revised target price of Rs 1,265 (38x FY24 EPS).”

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