Comments
Target: ₹953
CMP: ₹718.75
There is no change in the business prowess of SBI Card (SBIC) considering the spends growth and its relative market share in CIF/spends. The company is likely to deliver a five-year earnings CAGR of 27 per cent between FY18 and FY23 — a period that was also buffeted by Covid. Considering the high-growth nature of the industry and SBIC’s leading position, we feel the headwinds from interest rate cycles, cost of volume growth and slower interest-bearing asset formation are transient.
Recovery in these cycles appears nearer now as we move further away from Covid. Risks include possible regulatory cut in interchange fees. The negative impact of loss in OVL fees in Q3FY23 will partially be offset in near future via increase in charges on rental transactions and interchange fees.
Cost of funds could increase by more than 30-40 bps in Q4FY23. While part of it would be offset by passthrough of EMI rates (higher mix is helping), NIM could still be suppressed QoQ. The big lever for reduction in cost of acquisition will be in digital transformation and FY24 could be the pivot year for the same. SBIC has built the Sprint platform, an end-to-end digital processing application offering digital KYC (through Digilocker), alternate data integration and instant decision-making based on AI and ML models for the customers with real-time card issuance.
We maintain BUY with a revised target price of ₹953 (earlier: ₹1,040) based on 30x September FY24 earnings (earlier: 35x). This cut in multiples primarily stems from overall rising regulatory risk in the system in the entire diversified financial space. However, considering the RoA/RoE profile of about 5/25 per cent this multiple adequately factors in these risks, in our view.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.