Analysts reiterated their 'buy' calls on SBI Cards & Payment Services Ltd. after the fourth quarter, citing better asset quality, recovery in spends and a decline in credit costs.
The card issuer saw its profit jump by half over the preceding quarter and more than threefold year-on-year in the three months to March, beating estimates. Its margin also expanded and gross non-performing asset ratio fell.
SBI Cards and Payment Services Q4 FY22 (Consolidated, YoY)
Net profit up 231% at Rs 580.86 crore.
Revenue rose 23% at Rs 2,850.31 crore.
EBIT up 61.57% at Rs 880.80 crore.
EBIT margin 30.9% versus 14.18%.
Gross NPA at 2.22% vs 2.4% as of December.
Dividend per share: Rs 2.5
Brokerages also expect SBI Cards to be a key beneficiary of digital payment adoption.
Shares of SBI Cards fell more than 3% in intraday day before closing with losses of over 1%. Of the 25 analysts tracking the company, 24 suggest a 'buy' and one recommends a 'sell', according to Bloomberg data. The average of 12-month consensus price target implies an upside of 38.5%.
Here's what brokerages have to say about SBI Cards' Q4 FY22 results.
Kotak Securities
Maintains 'buy' with a target price of Rs 1,150 apiece.
25% YoY operating profit growth and 45% YoY decline in provisions aided 3.3x earnings growth in Q4.
It is entering FY23 with a solid balance sheet and positive intent.
NII growth is showing acceleration but still lags receivable growth.
Strong recovery in spends and healthy card additions supported interchange fee growth.
Headline NPA ratios are nearly back to pre-Covid levels.
Identifies weak growth in revolvers, impact of MDR regulations and competition as key issues that would take time to resolve.
SBI Cards would be key beneficiary of digital payment adoption and credit card business, which has an extremely attractive growth trajectory.
Likes SBI Cards for high market share, strength of its parent that lower acquisition costs and high-quality customers.
The focus would shift to fresh cards issued and spend growth in the upcoming period.
SBI Cards has scope of rerating, and along with solid earnings growth, makes it an attractive stock.
Nomura
Reiterates 'buy' with a target price of Rs 1,250, an implied return of 50.45%.
Lower credit cost drove PAT beat.
SBI Cards is entering a transitory phase, where revolver book will build up in FY23F.
Asset quality drags are completely behind.
Expects EPS CAGR of 37% over FY22-25F, with RoEs averaging 26-27% over FY23-25F and spends/loan growth at a 21% CAGR.
The current valuation is still at a 10.5% discount to Bajaj Finance for a significantly superior RoE profile.
Expects credit cost to undershoot on a lower revolver mix of 25-27% compared to pre-Covid level of 35%.
Motilal Oswal
Reiterates 'buy', cuts target price from Rs 1,120 to Rs 1,100, still an implied return of 33%.
Sharp decline in provisions aided the earnings beat in March quarter.
Expects the company to deliver 50% earnings CAGR over FY22-24 leading to RoA/RoE of 7.3%/30.6%.
Growth in spends remained robust despite the Omicron impact in January.
Expects spends to remain healthy as economic activity picks up.
Improving asset quality to continue to result in controlled credit costs.
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