Reduce SBI Cards and Payment Services: target of Rs 795: ICICI Securities

ICICI Securities's research report on SBI Cards and Payment Services

SBI Cards (SBIC) has been focusing on credit cost improvement and the results are becoming visible now. However, this has also led to a calibrated credit growth and directionally lower revolver mix, impacting earnings. We reckon that only directionally better credit cost may not suffice given the business environment’s tough history; any exuberance could be tempered with the experience of lingering challenges faced in the last four years, viz.: 1) Higher credit cost during Covid-19 and its escalation in FY24; 2) higher cost to income during BNPL surge; 3) structural decline in revolver mix; 4) higher CoF post-Covid-19; 5) increase in risk weights; and 6) resurgence of credit cost cycle in H1CY26. As per H1FY26 result, a combination of all the calibration is likely to lead to a muted show in FY26 and in turn a downgrade in FY26E/27E earnings. Considering the elevated valuation, we downgrade SBIC to REDUCE from Hold.

Outlook

Downgrade to REDUCE; TP at INR 795 (earlier: INR 884) on 25x FY28E (earlier 28x FY27E) We expect PAT of INR 20bn/INR 26bn/INR 30bn for Y26/27E/28E now. This results in RoAA of ~2.9%/3.3%/3.4% and RoAE of ~13.8%/15.5%/15.7% for FY26/27E/28E, respectively. RoAA/RoAE stood at 3%/13.9% in H1FY26 and 3.1%/14.8% in FY25.

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