SBI Cards — Valuations Appear Attractive: ICICI Securities

ICICI Securities Report

There is no change in the business prowess of SBI Cards and Payment Services Ltd. considering the spends growth and its relative market share in CIF/spends. However, there were external overhangs of declining net interest margins and loss in fees due to implementation of Reserve Bank of India master circular.

However, these challenges have largely played out and are reflected in valuations, which have halved in past two years. The company is likely to deliver a five-year earnings compound annual growth rate of 27% between FY18-FY23E – a period that was also buffeted by Covid.

Considering the high-growth nature of the industry and SBI Card’s leading position, we feel the headwinds from interest rate cycles, cost of volume growth, and slower interest-bearing asset formation are transient.

Recovery in these cycles appears nearer now as we move further away from covid. Risks include possible regulatory cut in interchange fees.

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