SBI Card Share price: Equirus initiates coverage with ADD rating and Rs 1120 target price

SBI Card is the only listed pure-play credit card company within a highly profitable segment that has top decile profitability within the payments/lending universe. SBI Card will likely clock a robust 29% EPS CAGR over FY22-FY25E and will continue to command strong return ratios with RoAs / RoEs above 6%/27% in the medium term. Equirus initiates coverage on the stock with ADD and Mar’22 target price of Rs 1120 set at 42.0x FY23 EPS. SBI Cards share price today Rs 980, down Rs 11 or 1.1%. 

Its competitive advantage stems from:

(a) Opportunities to penetrate the untapped customer base of its parent, SBI Bank
(b) ride the digitization of retail payments
(c) provide customized credit offerings

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To evaluate India’s credit cards growth opportunity, we have attempted to decipher a few trends from matured markets.

Key observations:

(a)   Free credit period need not be a key driver to propel credit card spends, with 12 of 20 countries showing credit cards losing spends market share over FY13-FY19
(b)   Credit card balances CAGR meaningfully lags spends CAGR
(c)   A high tax-paying population drives higher credit card penetration
(d)   Credit cards may not be lifetime products with debatable customer stickiness

Evaluating India’s credit card data from various sources Equirus believes:

(a)   about 30-35% of card holders contribute to bulk of the spends
(b)   credit card utilization levels decline with time
(c)   credit card penetration seems high at above 60% in the potential high spender’s segment,
(d)   approximately 76% of credit cards are owned by the salaried segment with 30-35% penetration in formal salaried

In terms of the opportunity size, Equirus believes:

(a)   superset for credit card issuances is 78 mn-80 mn households in India, of which 67 mn are urban (or 60% of urban households)
(b)   around 20% of spends for cardable households would already be via credit cards
(c)    spends/loan CAGR is likely to be at 18%/16% over FY22-FY31E with cards/individuals increasing to 2.5 from 1.5 currently