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SBI Cards: Most Analysts Say 'Buy', Goldman Sachs Makes Contrarian Call

Here’s what analysts have to say about SBI Cards...

<div class="paragraphs"><p>A customer using credit card to make online payment. (Bloomberg News)</p></div>
A customer using credit card to make online payment. (Bloomberg News)

Analysts continue to repose faith in SBI Cards & Payment Services Ltd. after a rare 'sell' call last week.

Goldman Sachs initiated coverage with a 'sell', according to its Jan. 7 note. The brokerage expects structural challenges in new-to-credit-card customers and headwinds for growth to intensify due to regulations and competition. It sees earnings growth moderating.

Macquarie, however, sees the credit card segment as the fastest-growing within Indian financials between FY22-26, according to its Jan. 11 note. The research firm expects the cards unit of India’s largest lender to be a “strong volume growth story in a highly underpenetrated credit card market”.

HDFC Securities said SBI's parentage offers a gateway for SBI Cards to India's largest customer base. The brokerage expects the disruption risks from UPI, BNPL and regulations on swipe fees to play out gradually without adversely impacting the company's prospects.

SBI Cards: Most Analysts Say 'Buy', Goldman Sachs Makes Contrarian Call

Prabhudas Lilladher predicts the company’s non-performing assets to be largely stable in the quarter ended December.

SBI Cards had snapped a four-day losing streak to close with 1% gains on Wednesday. On Thursday, the stock rose 0.18% to Rs 895.3 as of 1:10 p.m. The shares have tumbled 38% since their October peak when the Nifty 50 erased nearly all its losses.

Of the 23 analysts tracking SBI Cards, 20 have a ‘buy’ rating, one recommends a ‘hold’ and two suggest a ‘sell’, according to Bloomberg data. The only other brokerage to have a ‘sell’ rating is Axis Research.

Here’s what analysts have to say about SBI Cards...

Macquarie

  • Maintains 'outperform' with a target price of Rs 1,230 apiece—an implied return of 39.01%.

  • Regulatory cut in interchange fees due to the RBI's proposed changes regarding digital payments has already been priced in.

  • SBI Cards has enough levels to pass through a possible 20-basis-point merchant discount rate cut.

  • Data for new-age card players and BNPLs (Buy-Now-Pay-Later) show plenty of growth opportunities.

  • Expects the company to deliver return on equity of 24-27% over FY22-25E with a 32% earnings per share compound annual growth rate.

Prabhudas Lilladher

  • Maintains 'accumulate' on dips; target price reduced from Rs 1,199 to Rs 1,162, still an implied return of 31.33%.

  • Expects non-performing assets to be largely stable on sequential basis in Q3, and profit after tax to improve due to meaningful fall in provisions.

  • Healthy capital and provision buffers makes the company attractive in the coverage universe.

  • To witness one of the highest sequential NIM expansion among peers.

HDFC Securities

  • Initiated coverage on the stock on Jan. 8 with a 'buy' and target price of Rs 1,100; an implied return of 18.5%.

  • Credit cards are severely underpenetrated in India and primed for a long growth runway, which will benefit SBI Cards.

  • SBI's parentage offers a gateway for SBI Cards to India's largest customer base (only 4% of SBI's potential customers are carded).

  • The regulatory disruption risks from UPI, BNPL and potential regulations on swipe fees will play out gradually and also offer adequate profitability set-offs.

Goldman Sachs

  • Initiates coverage with a 'sell' and a price target of Rs 654—an implied downside of 29.45%.

  • Sees headwinds for growth intensifying due to competition and regulations.

  • Increase in credit losses hints at structural challenges in new-to-credit-card customers.

  • Expects earnings growth to moderate to 18% in FY22-25E from 27% in FY17-21 on increasing popularity of alternates, regulatory changes with respect to interchange rate, and competition from capital-rich fintechs and banks.

  • Valuations appear rich and operating leverage likely to be negative on regulatory headwinds.