SBI Cards m-cap tops Rs 1-trillion; Five factors that are driving the stock

With a market-capitalisation (m-cap) of Rs 1.02 trillion, State Bank of India-arm SBI Cards and Payment Services on Friday stood at 34th position in the overall m-cap ranking, BSE data showed. The firm’s m-cap is now more than that of Tata Motors, Shree Cement, and JSW Steel.

With the government's push towards digitalization, coupled with developments in e-commerce and growth in POS infrastructure, the India is gradually shifting towards a cashless economy. This and recovery from the Covid-19 pandemic are some of the factors fuelling the rally in the stock price, analysts say.  

“With the focus now on growth, SBI Cards will be an early beneficiary as the economy recovers on the back of being a play on rising discretionary spends and non-cash economy, broad reach of parent SBI, under-utilized captive banca potential and leadership in co-branded cards,” says Siji Philip, senior research analyst at Axis Securities.

Shares of the firm hit fresh lifetime high of Rs 1,095 apiece today, up 3 per cent on the BSE, in an otherwise weak market. From their listing price of Rs 658, the shares are now up 61.5 per cent on the BSE, while they have surged 41 per cent against the issue price of Rs 755. In comparison, the S&P BSE Sensex has leaped 63.5 per cent between March 16, 2020 (SBI Cards’ listing date) and February 18, 2021.

Here’re the top factors supporting the stock:

No peer comparison: SBI Cards is the only listed player in the credit card business, making it difficult to compare its business operation with any other company. Hence, investors who want to participate in the growing digital space have only one listed entity to bet on, say analysts. “Since it enjoys monopoly at the bourses, in this regard, SBI Cards is proving to be a good, pure-play investment bet,” says Gaurang Shah, senior Vice President at Geojit Financial Services.

Digital economy: The total number of unique credit card holders in the country is around 30 million and the share of active credit card users is about 40 per cent of that, implying a huge runway for growth of credit cards in the country, note analysts at Kotak Institutional Equities. Credit card adoption, the brokerage says, is expected to increase as more transactions move to non-cash modes and users simultaneously graduate from debit cards to more evolved credit cards.

At the end of the December quarter, SBI Cards had 11.5 million active cards in use, up 9.5 per cent on year. Moreover, card usage via online medium stood at a little over 53 per cent in Q3FY21.

Penetration in tier-II/III cities: A strong parentage of SBI gives its credit card arm access to over 23,000 branches across the country, says AK Prabhakar, head of research at IDBI Capital.

Gaurav Garg, head of research at CapitalVia Global Research, further adds that the restriction from RBI on new cards issuance by HDFC Bank because of certain gaps w.r.t. technology is also helping SBI Cards to capture the new market.
Tier-I cities accounted for 42 per cent of card sourcing, while tier-II and III made up 31 per cent, and 12 per cent sourcing, respectively at the end of Q3FY21.

Improved asset quality: During the recently concluded quarter, SBI Cards reported gross non-performing assets (GNPAs) at 4.5 per cent compared with 7.5 per cent in the previous quarter. The restructured stock stood 11 per cent up to Rs 2,300 crore relative to Rs 2,100 crore in Q2FY21, and a fresh NPA stock of Rs 400 crore taking the watchful pool to 13 per cent of overall loan receivables.

That said, while 50 per cent of the RBI RE stock of Rs 2,300 crore has observed repayments, Rs 700 crore remains critical but carry 65 per cent provisioning. Besides, it maintained ECL at 65 per cent and held Rs 1,100 crore additional provisions (between Q4FY20-Q3FY21) coupled with consistent rise in recoveries.

Philip of Axis Securities, meanwhile, says the quarter gone by reflects improvement in market share with retail spends crossing pre-Covid levels, increased corporate spends led by non-discretionary focus and revival in new card sourcing.

“Considering the factor that credit business has inherent risks involved, SBI Cards looks well positioned with controlled delinquencies, provision sufficiency and continued business momentum,” adds Garg of CapitalVia.

Valuation: SBI Cards’ valuations have reached peak, says Prabhakar of IDBI Capital. “But given its attractiveness over the long-term, investors can continue to buy the stock,” he says.

Those at Prabhudas Lilladher believe SBI Cards stands poised to deliver 5.7 per cent RoA and 27.5 per cent RoE over FY22-23. The brokerage maintains ‘Accumulate’ for a price target of Rs 1,081 at 41x PE Mar’23E.

Anand Rathi Stock Brokers, too, have ‘Hold’ rating on the stock with a target price of Rs 1,091 noting cap on interest rates, more-than-anticipated delinquencies, and altered association with the promoter as key risks to the upside.