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Target: ₹1,246
CMP: ₹820.2
SBI Cards and Payment Services has reported earnings 17 per cent above our estimates due to lower-than- expected provisioning (3.3 per cnt net credit costs) as the stress pool continued to subside (GS II/GSIII at 8.5 per cent/2.2 per cent).
The business momentum continued to gain traction in terms of CIF (17 per cent YoY), unit spends (32 per cent YoY) and unit receivables (7 per cent YoY) driving higher fee income (28 per cent YoY). However, NIMs remained under pressure at 13 per cent (200bps below pre-Covid levels) with a sub-optimal share of revolving loans at 25 per cent (Q4FY20: 40 per cent).
The share of revolving loans continued to trend lower and remains a key monitorable to drive superior earnings per card. While the RBI’s recent credit card guidelines are likely to have a negligible impact on the company’s portfolio, the potential regulations on MDR cap for credit cards continue to remain an overhang, although we argue that SBI Cards has adequate profitability setoffs.
We tweak our FY23/FY24 earnings estimates by 3/1 per cent to factor in lower share of revolving loans, partially offset by higher fee income (higher spends per card), and maintain Buy with a revised target price of ₹1,246 (38x FY24 EPS).
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