Buy SBI Cards and Payment Services; target of Rs 643: Prabhudas Lilladher

Prabhudas Lilladher's research report on SBI Cards and Payment Services

SBICARD May-month business update threw a few positive surprises. Amidst lockdown challenges, (a) ~27k new card additions in Apr'20 (b) increase in new card additions per day to 2500 in May'20 from 1000 in Apr'20 (c) spends per day at Rs2000mn in last 7 days of May'20 (Rs2900mn in Q4) (d) online spends share up to 55% in May'20 (44% in Q4) (e) morat customers stood steady at 12% between Apr-May'20. We reckon May'20-month business stands largely driven by pent-up demand and the same should moderate in H1FY21 on account of macro headwinds (job layoffs, salary cuts). To combat such challenges, Co has been focusing on new spend categories (education, online health & pharmacies) and utility spends (D&G, fuel, electronic, wellness). Moreover, continued interest income and repayments from morat customers (24% at Apr-end) could act as cushions. We expect moderation in per card spends (0.5-1% vs ~6% pre-COVID era) and card additions (2% in H1FY21 vs avg 27% pre-COVID era) in H1FY21. While near term challenges stand imminent, sufficient capital, liquidity buffers and robust risk management would support balance sheet resilience.

Outlook

We have built-in meaningful stress (6%NPA, 90% dip in EPS growth) into our FY21 earnings, but FY22 should witness strong earnings revival (RoE/RoA at 27/5%) back to pre-COVID levels. Maintain BUY, TP: Rs 643 (36x PE FY22E).

For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Read More