SBI Card shares: ICICI Securities cuts target price for stock amid rising regulatory risk

These challenges have largely played out and are reflected in valuations, which have halved in past two years, the brokerage said in a research note.

The brokerage has maintained a ‘Buy’ rating on SBI card, with a revised target price of ₹953 against target price of ₹1,040 earlier.

This cut in multiples primarily stems from overall rising regulatory risk in the system in the entire diversified financial space (link), the brokerage said. However, considering the RoA/RoE profile of 5/25 per cent this multiple adequately factors in these risks, as per the brokerage.

“The company is likely to deliver a 5-year earnings CAGR of 27 per cent between FY18-FY23E – a period that was also buffeted by covid,” the note stated.

Considering the high-growth nature of the industry and SBIC’s leading position, the brokerage feels the headwinds from interest rate cycles, cost of volume growth, and slower interest-bearing asset formation are transient.

“Recovery in these cycles appears nearer now as we move further away from covid. Risks include possible regulatory cut in interchange fees,” it said.

“The industry due to high growth will always have optimisation challenges between investments and earnings, but there has been no loss in business for SBIC. This is worthy of appreciation considering that the change in receivables mix and increase in cost-to-income ratio is an industry phenomenon,” the note said.

“There will always be a constant optimisation between growth investments and earnings, which may not consistently be in resonance. However, SBIC has maintained its market share broadly in the range of 18-19 per cent in terms of spends and ‘cards in force’ (CIF) in a hyper-growth industry (spends/CIF grew 26 per cent/15 per cent between FY12-FY22),” the brokerage said.

“Even in the short term, the revolver segment has grown by 19 per cent/24 per cent in Q3/9MFY23 while EMI segment has grown by 50 per cent/53 per cent during the same periods resulting in lower revolver mix. Company did mention in its Q3FY23 call that the revolver mix of 24 per cent during the quarter was 65 per cent of pre-covid levels – similar to other industry players,” it added.

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