SBI Cards - can the stock fly?
SBI Cards, India's second-largest credit card issuer, is off to a rough start since its public debut in March 2020, with stock mostly trading sideways despite major indices marching upwards on the back of India's economic boom. Investors and shareholders are starting to lose patience.
What's happening — SBI Cards, India's second-largest credit card issuer, is off to a rough start since its public debut in March 2020, with stock mostly trading sideways despite major indices marching upwards on the back of India's economic boom. Investors and shareholders are starting to lose patience.
SBI Cards by the numbers:
- Market capitalization: ₹68,024 crore ($8.2 billion)
- Current stock price: ₹715
- Stock trades at a PE ratio of 28.2x, which is modestly higher than the Nifty 50 PE of 23.1x
- SBI Cards has managed to grow sales at 24.2% year-over-year
What's causing this: SBI Cards and pretty much every other credit card issuer is navigating challenges posed by the global interest rate environment. The Federal Reserve's aggressive rate hikes in 2022 have had ripple effects on credit card issuers worldwide, potentially dampening consumer appetite for credit.
However, rate hikes haven't exactly hurt SBI Cards' fundamental momentum. The company's earnings per share has grown from ₹6.16 when the rate hikes started going into effect in Jan 2022 to ₹6.97 in the most recent quarter. Gross non-performing assets (NPAs) have remained steady at 2.35% as of Q1 FY2024.
Fundamentals are solid
- SBI Cards has also managed to display 34.2% EPS growth over the past 3 years, showcasing strong profitability improvement.
- Total card base grew 21% YoY to 16.8 million in Q1 FY2024
- Spends increased by 14% YoY to ₹68,887 crore in Q1 FY2024
Big Picture
Despite difficult macro conditions, India's credit card market remains a bright spot. The country's low credit card penetration (estimated at less than 5% of the population) presents a substantial growth opportunity for SBI Cards.
- The total number of credit cards in India stood at 86.4 million as of May 2023, growing at 16.7% YoY.
The bottom line: While interest rate hikes pose challenges, the vast untapped potential in India's credit card market provides a substantial growth runway. SBI Cards' ability to navigate these competing forces, manage its debt levels (currently at ₹39,891 crore), and capitalize on India's digital payment revolution will be crucial in delivering long-term value to shareholders.
