‘Neutral’ on SBI Cards and Payment Services: Motilal Oswal

By: |
March 3, 2021 1:00 AM

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 regulator also carried out an examination of the correspondence with the bank regarding payment of remuneration to its employees in the form of commission to arrive at its decision.The regulator also carried out an examination of the correspondence with the bank regarding payment of remuneration to its employees in the form of commission to arrive at its decision.

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.

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