SBI Cards share price edges higher after a robust Q3, Motilal Oswal expects 32% upside

SBI Cards and Payment Services’ share price was up more than 3 percent at Rs 841.50 on BSE in the morning trade on January 25, a day after the company reported a healthy set of numbers for the December quarter.

SBI Cards & Payment Services profit after tax (PAT) zoomed 84 percent YoY to Rs 386 crore with revenue of Rs 3,140 crore, marking a 24 percent YoY surge, for the quarter ending December 31, 2021, the company said in a regulatory filing on January 24.

The increase in revenue “is primarily due to higher income from fees and services in Q3 FY22”, SBI Cards said.

For the nine-month period ending on December 31, the company recorded a revenue of Rs 8,285 crore, which was 14 percent higher than the corresponding period last year. PAT for the April-December 2021 period increased by 28 percent YoY to Rs 1,035 crore.

The return on average assets (ROAA), a key metric to assess the profitability of a company’s assets, came in at 5 percent during the third quarter as compared to 3.3 percent in the same period last year.

At 11.16 am, the share was trading at Rs 841.50, up Rs 27.40, or 3 percent, on BSE. The scrip has touched an intraday high of Rs 854 and an intraday low of Rs 781.25.

Earnings before credit costs increased by Rs 213 crore, or 23 percent, to Rs 1,144 crore in the last quarter, as compared to Rs 931 crore in the same quarter of the last fiscal year.

SBI Cards noted that its new accounts volume grew to 1,008,000 in Q3 FY22, up by 10 percent as compared to 918,000 in Q3 FY21.

Card-in-force grew by 15 percent to 1.32 crore as of December 2021 from 1.15 crore in the year-ago period.

Domestic research and broking firm Motilal Oswal has maintained a “buy” call on the stock, with the target of Rs 1,120 a share, an upside of 32 percent from the current market price.

“SBI Card reported in-line performance, characterized by sharp growth in spending (47 percent YoY), while PAT grew 84 percent YoY to Rs 386 crore. Pre-provision operating profit (PPOP) grew 23 percent YoY, aided by steady revenue growth (5 percent beat). Margins stood at 14 percent (14.1 percent in 2QFY22), and the management indicated the revolve rate has bottomed out. Retail and corporate spending grew robustly at 36 percent YoY and 93 percent YoY, respectively,” it said.

“We estimate the company to deliver a 51 percent earnings CAGR over FY22–24E, leading to RoA/RoE of 7.2 percent/30 percent and maintain buy call on the stock.”

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