SBI Cards Stock Hits A Record High On Credit Suisse’s Bullish Rating

Shares of SBI Cards & Payments Services Ltd. jumped to a record high after Credit Suisse to initiated coverage on the nation’s only pure-play credit card issuer with a bullish rating, citing a largely untapped opportunity, a strong rise in digital adoption over the last few years, strong profitability and a robust medium-term outlook.

The global research firm suggested an ‘outperform’ rating for the subsidiary of India’s largest lender, State Bank of India, with a price target of Rs 1,250, according to its note. That implies an upside of 14% from Monday’s close.

Credit Suisse expects growth for SBI Cards to remain strong as it increases penetration with its parent SBI’s customers and with the rising trend of ‘buy now, pay later’. “As fintech players are helping expand the market, this should aid medium-term growth for credit cards,” the note said. It expects SBI Cards to have a strong asset growth as it has the lowest loans per card and with an increasing focus on EMI conversion.

“As the benefits of operating leverage play out, we expect the cost to income to continue moderating and RoAs improving to 7% in FY23E,” Credit Suisse said, adding NIMs may hold up as the cost of funds decline despite the increased share of restructured loans.

Credit Suisse also said the asset quality stress for SBI Cards has peaked. “While Q4 may still see elevated provisioning, slippages have peaked and even as we build in 30% of the restructured book slipping, FY22E RoAs are likely to recover to 6.3%.”

SBI Cards’ proforma gross and net non-performing assets ratio—accounting for those accounts that were not classified as NPA following Supreme Court’s order in interest-on-interest case—stood at 4.51% and 1.58%, respectively, in the quarter ended December. That compared with 7.46% and 2.70% proforma gross and net NPAs in the three months to September. SBI Cards’ gross write-offs during the third quarter stood at Rs 648 crore compared with Rs 218 crore in the preceding three months and Rs 292 crore a year ago.

Credit Suisse highlighted regulations imposing caps on merchant discount rate or interest rates on revolvers and rising competition on EMI loans, resulting in slower growth or lower interest rates as key risks for SBI Caps stock.

Shares of SBI Cards rose as much as 3.7% in early trade on Tuesday to a record high of Rs 1,139.3 apiece. Of the 11 analysts tracking the company, eight have a ‘buy’ rating and three suggest a ‘hold’, according to Bloomberg data. The stock is trading near its 12-month consensus price target of Rs 1,141.2 apiece.

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