SBI,
ICICI Securities, a domestic brokerage and research firm, stated that SBI Cards (SBIC)’s business acumen has not changed in light of the increase in expenses and its relative market share in CIF/expenses. However, it stated that the implementation of the RBI master circular and a decrease in NIM were the external reasons for the charge reduction.
In a research note, the brokerage stated that these difficulties have emerged and are reflected in valuations, which have decreased by half over the past two years.
The brokerage has maintained its “Buy” rating for SBI Cards and raised its target price from 953 to 1,040.
According to the brokerage, the primary cause of this decrease in multiples is the rising regulatory risk in the system across the diverse financial space (LINK). The brokerage claims that its ROA/ROE profile of 5/25% indicates that it adequately accounts for these risks.
According to the note, “The company is likely to deliver a 5-year earnings CAGR of 27% between FY2018 and FY23E – a period that was also affected by Covid.”
The brokerage believes that headwinds from the interest rate cycle, the cost of volume growth, and slower asset creation are temporary due to the industry’s high growth and SBIC’s leadership position.
“As we get further away from Covid, it now appears likely that these cycles will recover. It said, “Risks include the possibility of a regulatory reduction in interchange fees.”
“There will constantly be difficulties in streamlining among venture and profit in the business because of high development, however there has been no deficiency of business for SBIC. Given that the shift in yield mix and rise in the cost-to-earnings ratio are industry phenomena, this is commendable,” the note stated.
Growth investment and earnings will always be optimized, although this may not always occur in harmony. However, in terms of expenses and “cards in force,” SBIC has predicted a range of approximately 18 to 19 percent (CIF). has maintained its market share in the ultra-growing industry (“expenditure/CIF growth of 26%/15%) from FY12 to FY22,” according to the brokerage.
“Even in the short term, the revolver segment grew 19%/24% in Q3/9MFY23, while the EMI segment grew 50%/53% during the same time period, which resulted in a lower revolver mix. “The revolver mix of 24% during the quarter was 65% of pre-Covid levels, similar to other industry players,” it added in its Q3FY23 conference call.
