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Return to normalcy to propel business growth…

About the stock: SBI Cards is subsidiary of State Bank of India (69.3% stake) and is second largest credit card issuer in India.

* Market share in terms of cards issued is 19.2% and spends is 19.4%

* High margin business with strong return ratios, +5% RoA and +25% RoE

Q1FY22 Results: SBI Cards reported a gradual pick-up in operational performance

* Spends up 74% YoY but down 7.5% QoQ at | 33260 crore

* NII up 10.3% QoQ to | 924 crore, NIMs up 160 bps QoQ to 14.8%

* C/I ratio down 530 bps QoQ to 52.5%, credit cost elevated at | 645 crore

* GNPA down 108 bps QoQ at 3.91%, RBI Re at 5.9% of net loans

What should investors do?

SBI Cards stock price has given ~50% returns since its listing in March 2020. We believe the company is attractive considering strong prospects to post healthy growth and profitability.

* We maintain BUY rating on the stock

Target Price and Valuation: We value SBI Cards at ~12x FY23E ABV to arrive at a revised target price of | 1200 from | 1100 earlier.

Key triggers for future price performance:

* A sharp recovery in spends with unlocking to fuel business growth

* Lower NPAs and rise in revolver, EMI book to aid margins

* Digitisation to help credit card segment as a whole

* Return ratios to improve with RoE, RoA at 6.5%, 28.5%, respectively, by FY23E

Alternate Stock Idea: Apart from SBI Cards, in our coverage we like Bajaj Finance

* It is a dominant player in consumer finance space and has given superior performance over past many years in terms of growth and profitability

* BUY with target price of ₹6900

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