SBI Cards and Payments Services (SBICARD) has strengthened its position as the second-largest card player in the country — with market share of ~19% in o/s cards and ~20% in overall spends. The company has an o/s card base of ~11.5m and has doubled its card base over the past three years at an average incremental market share of 23%. SBICARD has access to parent SBIN’s vast network of ~22k branches and customer base of ~450m, along with strong open market sourcing capabilities.
Thus, it remains well-placed to capitalise on growth opportunities in a highly underpenetrated market. The company has delivered average RoA/RoE of ~5%/29.5% over FY18–20. While Covid-19 has disrupted the growth trajectory, recovery has been fairly sharp, with retail spends surpassing pre-Covid levels. We estimate a loan book/ earnings CAGR of 27%/47% over FY21–23E, while margins are likely to remain broadly stable.
We estimate credit cost to moderate gradually, and expect the company to report healthy return ratios with RoA/RoE of 6.6%/28.4% in FY23. We initiate coverage with a Neutral rating and TP of Rs 1,200 (43x FY23E EPS).
India’s credit card base has increased at a 22% CAGR over the past five years to ~60m, while total spends have improved at a faster 31% CAGR during this period. Thus, the credit card penetration rate has increased ~230bp to 3.8% in the past five years. However, this remains much lower v/s most other countries. Furthermore, the credit card penetration to banks’ internal customers stands at a meagre ~7% (the lowest for SBI Cards at 3.8%), providing ample cross-sell opportunities.
Therefore, we believe a highly underpenetrated market — coupled with a higher thrust for digital payments, rising e-commerce, and efforts towards making the economy a cashless one — provides strong structural growth opportunities.
SBI Cards has strengthened its position as the second-largest player — with market share of ~19% in o/s cards and ~20% in spends. It enjoys SBI’s strong parentage, with an extensive network of ~22k branches and a vast customer base of ~450m.
The company has grown its outstanding cards at a 27% CAGR over the past five years. On the other hand, the customer acquisition rate has reversed to normal levels as the impact of Covid-19 has waned. On account of robust distribution, SBICARD is well-placed to capitalise on growth opportunities as the market remains significantly underpenetrated.