Motilal Oswal Maintains 'Neutral' Stance On SBI Cards — Here's Why

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Motilal Oswal Report

SBI Cards and Payment Services Ltd. is the second-largest player in the card industry with 19.1% share in cards-in-force and 16.6% share in total industry spends. However, its market share in spends has declined over the past few years, mainly due to the moderation in corporate spends. Growth in retail spend has though remained healthy.

SBI Cards has been the beneficiary of rate cuts, as its CoF has declined by 30 basis points during the latest repo cuts, while further benefits are yet to be realized. With high prospects of additional rate cuts, SBI Cards can see a further reduction in CoF.

We anticipate the near-term credit cost to stay elevated, although an easing in credit cost and tailwinds in margins should lead to an improvement in return ratios. Thus, we build in an improvement in RoA toward 3.8% in FY26E, 4.6% in FY27E and 4.8% in FY28E.

With some pickup in economic activity from the current levels, we expect the tailwinds to flow into better spends and loan growth. Thus, we expect spends to clock 18% CAGR over FY25-28E and loans to see ~15% CAGR over the similar period.

We maintain our Neutral rating on the stock with a target price of Rs 950 (24x FY27E EPS).

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