Shares of SBI Cards and Payment Services have disappointed investors this year. As of November 30 close, the stock is down 11 percent while the equity benchmark the Sensex is up 8 percent.
The stock hit its 52-week high of ₹1,028.75 on August 17, 2022, and is now down 20 percent from that level.
The September quarter earnings of the company reflected the negative impact of higher provisions. It reported a 52 percent growth in net profit to ₹526 crore in Q2FY23 compared to ₹345 crore in Q2FY22.
Interest income surged by ₹311 crore to ₹1,484 crore versus ₹1,173 crore in Q2FY22. Total revenue was at ₹3,453 crore for Q2FY23 as against ₹2,696 crore for Q2FY22.
As of September 30, 2022, the company's market share stood at 19.1% in cards-in-force, whereas, spends held a share of 18%.
Long-term growth potential looks in place
Brokerage firm Emkay Global Financial Services has initiated coverage on the stock with a buy call, pegging a target price of ₹1,000, implying a 22 percent upside in the stock price from the current levels.
The brokerage firm is positive about the growth prospects of the credit card segment in India. Since SBI Card is India's second-largest credit card issuer, there is the significant growth potential for the company.
Despite Covid-induced disruptions and rising competitive intensity from alternate payment or credit products, India’s credit card base doubled to 74 million in Mar-22 from 37 million in Mar-18 and now stands at a high 79 million, Emkay underscored.
It said the cumulative spending (in seven months of FY23) growth is at 58 percent year-on-year, indicating strong underlying growth currents.
The brokerage firm expects an overall industry CIF CAGR of 17 percent and spending to post a near pre-Covid CAGR of 32 percent in FY22-25E against 33 percent CAGR in FY15-19.
"SBI Card is India’s second-largest credit-card issuer, with a 19.1 percent market share of active cards-in-force [CIF] and ranks third in terms of spending, with 18 percent market share. We expect SBI Card to log a strong CIF CAGR too, at 18 percent, and spending CAGR of 30 percent in FY22-25E, thus, largely upholding its market share," said Emkay.
"Beyond FY25, we expect SBI Card to maintain spends-share at nearly 18 percent, and clock FY25-35E CC-spends CAGR in the mid-to-high teens. Further, despite the likely continued moderation in interchange fees (ICF), we see RoE (return on equity), staying resilient for SBI Card at 25-26% over the cycle, based on more than 5 percent RoA (return on assets), aided by operating leverage, and normalised LLPs (loan loss provisions) (6.2 percent of loans), with upside risk from higher (more than 5 times) leverage," said Emkay.
Technical indicators are also supporting a buy for the stock.
Jigar S. Patel, Senior Manager - Equity Research, Anand Rathi Share and Stock Brokers observed that the stock has stabilized around 0.618 retracements of its previous up move till ₹1,029.
"Bullish divergence is seen in daily MACD along with a bullish cross. Also, daily stochastics has turned overbought, thus hinting towards a possible upside in coming sessions. One can buy at the current levels in a small tranche and another around ₹810 level with an upside seen till ₹880 and support is seen at ₹780," said Patel.
According to a MintGenie poll, an average of 24 analysts have a ‘buy’ call on the stock.
Disclaimer: The views and recommendations given in this article are those of individual analysts and broking firms. These do not represent the views of MintGenie.