Home/ Markets / Stock Markets/  Despite SBI Card shares' underperformance, here's why Jefferies initiates coverage with 'Buy'

SBI Card and Payments Services, India's second-largest credit card issuer, should see 23% compound annual growth rate (CAGR) in card spends over FY23-26e by leveraging State Bank of India's (SBI) large customer base and its wide co-branded card tie-ups, as per global brokerage Jefferies. 

“Net interest margins (NIMs) should bottom out in 1HFY24 and improve over FY24-26e as revolver mix slowly inches up and rates stabilizes, driving healthy profit growth and 23%+ ROE over FY24-26e. The recent underperformance vs NIFTY likely factors in NIM concerns," said the brokerage while initiating coverage on SBI Cards shares at Buy on strong franchise in credit cards, with a target price of 900 apiece.

“We believe SBI Cards' underperformance (-21%) vs NIFTY (+1%) in the past 6 months already reflects concerns around NIM and fee headwinds. Threat from potential new entrants like BAF and higher spend share gain by UPI are the key risks. Rise in revolver mix and peaking out of rates are key triggers," added Jefferies.

“Top line should grow at 22% CAGR, led by 24% CAGR in NII and 21% CAGR in fee income over FY23-26e. Tighter norms for processing over limit transactions by RBI has hit over limit fees (6% of fee income). With asset quality pressures easing, stage 3 assets (2.2% 3Q) and credit costs should be stable. Possible caps on MDR and revolver yields, by RBI are key risks - a10 bps change in interchange fee/ revolver rates changes FY24e EPS by 10%/ 3%," it added.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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Updated: 30 Mar 2023, 02:18 PM IST
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