Value Pick: strong fundamental, growth momentum are strong triggers for SBI Cards; brokerages see up to 58% upside in stock

Brokerages estimate a growth of over 20 per cent in the credi card segment even as new-age digital payment modes take centre stage. SBI Cards and Payments Services is likley to be a beneficiary from this growth, several brokerages opined.

Several brokerages picked SBI Cards and Payments Services shares as the best bet and see an upside of up to 58 per cent in the stock price. The counter was trading at Rs 860.60 on the BSE around 12:45 pm, up 0.7 per cent from the Wednesday closing price. 

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They expect the sector momentum to continue with an increase in travel spending, expanding digital footprint, and normalization of business activities providing growth impetus to the cards business. 

Edelweiss Broking 

The brokerage initiated coverage on SBI Cards with a Buy and target of Rs 1,350 apiece, implying a 58 per cent upside. It is the only opportunity to invest in unsecured consumer credit and payments business that has it all—sustainable secular growth, rousing returns, and cozy consolidation, as per brokerage.  

The company’s leadership, deep know-how (long experience), and moats will help it gain a share in an otherwise difficult-to-master business with high entry barriers. 

"We view SBI Cards as a concept stock offering high-growth and high returns by the only listed player of its kind for a foreseeable future. It would thus sustainably command a premium accorded to few Indian stocks," the brokerage said.  

Anand Rathi 

"We value SBI Cards at 38x FY24e EPS, with a target price of Rs 1,221 per share on higher spending, low pain visibility, and better fee income. And hence, the brokerage assigns a Buy rating with around 43 per cent upside from the current price," it said.  

In SBI, there are 430-450 million customers, excluding Jan Dhan, dormant accounts, and some rural areas and regions where cards need to be issued. The eligible population is 200 million, with about 6 million cards issued. Thus, there is huge potential. 

The net interest margins of the company are declining with transactors increasing significantly. Besides, the company is focussing on flexi pay, that is EMI loans. The interest income around 45 per cent of revenue, is just one source and other sources like fee-income registered growth. 

Haitong Securities  

"We initiate an Outperform rating on SBI Cards with a target price of Rs 1,000 per share where we value SBI Cards using a DCF (discounted cash flow) methodology. In our opinion credit, card business is a half transaction and half lending business, thus it could generate high ROEs (return on equity)," the brokerage said. 

Historically, the company’s RoE profile is less volatile compared to global credit card issuers. Thus, we feel a higher PE multiple for SBI Cards than pure lending businesses is justified. The main risks to our rating and TP are from any regulatory cap and deterioration in asset quality. 

"We expect the growth momentum in the credit card business to continue in the future given that the Indian credit card industry is at a relatively nascent stage with only 4 per cent of the population (FY21) having at least 1 card," it said. 

(Disclaimer: The views/suggestions/advises expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)