Stock To Buy: This SBI Group Stock That Can Jump 27% In 1-Year

Broking firm Emkay Global has recommended buying the stock of SBI Cards for gains upto 27% from the current levels. The brokerage has set a price target of Rs 980 on the stock of SBI Cards in a year's time. According to the brokerage, despite continued margin pressure and higher provisions, SBI Cards reported in-line PAT at Rs 6bn (3% YoY/17% QoQ), driven by higher fees which, in turn, were led by business development fees on higher volume milestones and other fees including charge on rental spends. Higher provisions were mainly because of some inch-up in NPAs (Gross stage 3 up 14bps QoQ to 2.4%) from the vintage pool and tightening of the ECL model, leading to a 20bps (Rs0.2bn) increase in LLP.

Healthy card additions

According to Emkay Global SBI Cards clocked healthy new card addition at 1.4mn (CIF@16.8mn), leading to slight improvement in the CIF market share (up 40bps QoQ) to 19.7%. "Spends growth, too, was strong at 32% YoY/4% QoQ, with corporate spend coming back and leading to increase in its share at 23% vs 21% in Q3. Receivables growth tracked the spends growth, at 32% YoY/5% QoQ, as revolver share remains rigidly low at 24%," the brokerage has said.

"SBI Cards expects industry spends growth to moderate on the higher base to ~22-25% in FY24 from 47% in FY23, while maintaining some alpha and thus gaining market share. This should support spend-based fee growth and, hence, the core profitability. Management expects CoF to inch up till 2Q, post which it should stabilize and thus support margins," Emkay Global has added.

Target price of Rs 980 on the stock of SBI Cards

Emkay Global has nipped its FY24E earnings by 2%, but expect SBI Cards to deliver strong RoE of 25% over FY24-26E, partly led by margin recovery (from FY25E) and improving leverage. "We retain BUY on the stock, with revised target price of Rs 980 per share, based on the ERE model, implying 6.2x FY25 P/ABV and 27x price to earnings ratio.

Key downside risks to Emkay target price include slower than expected spends-growth/market-share, prolonged funding cost pressures, and industry-wide regulatory cut in MDR/ICF.

Disclaimer
The stock has been picked from the brokerage report of Emkay Global. Greynium Information Technologies and the author are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision. The above article should not be construed as a buy recommendation from our end, as we have just provided information based on the brokerage report.