Prabhudas Lilladher is bullish on SBI Cards and Payment Services has recommended buy rating on the stock with a target price of Rs 974 in its research report dated July 21, 2020.
Prabhudas Lilladher's research report on SBI Cards and Payment Services
An all-round performance and incredibly lower moratorium value (down 79%MoM in Jun’21) sums up Q1FY21 performance for SBICARD. Co.’s focus on non-discretionary (88-90% of spends led by both retail & corporate) and digital spends (online retail spends rose to 56% in Q1FY21 from 44% in FY20) translated into healthy loans (Rs 233bn vs PLe of Rs 217bn growing 10%YoY/-3%QoQ) and avg daily spends (up 77% to pre-COVID levels) defying lockdown challenges. While NPA (down 133bps YoY/33bps QoQ to 1.35%) and provisioning (42% down QoQ) for the quarter witnessed sharp decline, the same stands masked due to moratorium dispensation. Hence, we build-in elevated NPA (4.5% in FY21) and credit costs (6.3%), albeit lower than earlier estimates as controlled delinquencies (morat decline), suitable customer mix (85% salaried) and robust data analytics and risk management systems are gradually paying off. We see SBICARD geared to return to normalcy sooner than expected with emergence of greenshoots (fall in unemployment rate to pre-COVID levels, digital transactions uptick), improving corporate spends led by non-discretionary focus (vendor, tax & utility payments & gradual pick-up in domestic travels) and increasing banca potential (55% SBI sourcing). As structural demand begin to roll in and Co. reporting industry lowest morat nos., FY21 EPS estimates swell by 63% over previous nos. Our FY22-23 EPS estimates stands tweaked by 18%/5% resp. led by increased spends (25%YoY growth) and fee income (34%YoY growth). Such a robust performance places SBICARD as the only NBFC to clock industry best avg 25% RoE and 5.3% RoAs over FY22-23E.
Outlook
Hence, we reiterate BUY valuing SBICARD at 47x PE as we roll over our target multiple to Sep’22 estimates for a price target of Rs974.
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