Add SBI Cards and Payment Services Ltd For Target Rs. 1,000 By Emkay Global Financial Services Ltd
SBIC reported all-around better performance with sustained improvement in asset quality, with stage 3 assets down by 16bps QoQ to 3.1% and a 54bps QoQ improvement in margin to 11.2%. This, coupled with lower opex due to drop in cash-backs and depreciation (as SBIC shifted to the leased model), led to a strong 51% beat in PAT at Rs5.3bn/3.4% RoA. Card stress flow has moderated for the industry, as also for SBIC which should lead to steady moderation in credit cost. The mgmt remains a bit guarded on growth, given the uncertain macro environment, though it expects margins to be stable with an upward bias once the full effect of rate reduction plays out via lower CoF. We retain ADD and revise up TP by ~11% to Rs1,000 (Rs900 earlier), implying FY27E PER of 24x and P/ABV of 5x.
Slower growth, but margins zoom as CoF eases
SBIC’s new card acquisition remained healthy at ~1.1mn due to new card introduction (majorly travel focused) and higher growth in RuPay cards (which now constitute a mid20s share of the overall CIF). Overall CIF base increased 10% YoY to 20.8mn, with slight improvement in market share to 18.9%. Spends share too was stable, at 15.6%, supported by revival of corporate spends, while retail spends were largely flat QoQ. Consequently, receivables grew at a moderate pace of 10% YoY/2% QoQ, but better yield on loans/lower CoF led to 54bps QoQ uptick in margins at 11.2%. Amid macroeconomic uncertainties, the company aims for calibrated growth, targeting ~1.1mn card additions per quarter in FY26. Spend growth is projected at 18–20% for the year, with strategic focus on profitably regaining lost market share in the corporate spends segment. Despite repo rate cuts, SBIC expects NIMs to be stable in FY26, with an upward bias.
Stress flow moderates further
Asset quality improved further, with GNPA ratio down by 16bps QoQ to 3.1% mainly due to higher write-offs, with the stage 2 stressed assets pool too improving, by 60bps QoQ to 5%. However, the management noticed significant challenges last year in its stage 2 assets, and has hence prudently quintupled its provision cover to 20% from ~4%. Conversely, the provision cover on stage 3 assets was reduced by 1,100bps to 53% due to revision in the ECL computation methodology (majorly in treatment of recoveries). On an overall basis, the management has accelerated provisions in the early buckets and expects the overall credit cost to moderate in FY26E/FY27E.
We retain ADD; revise up TP by ~11% to Rs1,000
We believe SBIC will be the key beneficiary of the policy rate cut as well as the asset quality normalization cycle in the card portfolio. The stock has recently rallied on the back of this. We retain ADD on SBIC, while revising up our TP to Rs1,000 from Rs900 (up 11.1%) , implying FY27E P/E of 24x and P/ABV of 5x. Key risks: Slower-than-expected growth and delay in asset quality improvement amid uncertain macros.
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