Emkay Recommends 'Buy' on SBI Cards, Sets Rs 850 Target

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AuthorRiya Kapoor|Published at:
Emkay Recommends 'Buy' on SBI Cards, Sets Rs 850 Target
Overview

Emkay Global Financial maintains a 'BUY' rating on SBI Cards and sets a new target price of Rs 850. Key drivers include strong fee income from spending and anticipated improvements in asset quality, even with slower customer acquisition (CIF) and asset growth (AUM). Emkay forecasts RoA to rise to 3.9%-4.8% by FY29, expecting a gradual increase in the stock's valuation.

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Emkay Reiterates 'Buy' on SBI Cards

Emkay Global Financial has reiterated its 'BUY' stance on SBI Cards and Payment Services Ltd., establishing a target price of Rs 850. The brokerage's outlook acknowledges a strategic focus on portfolio quality, which has led to softer growth in customer acquisition (CIF) and Assets Under Management (AUM).

Strong Fees Boost Results Despite Slower Growth

This strategic focus, along with seasonal adjustments in EMI and revolver portfolios, led to subdued Net Interest Income (NII) growth of 3% year-on-year. However, SBI Cards showed resilience with strong fee income generated from customer spending, supported by steady corporate spending. Lower credit costs, at 7.7% compared to 8.2% in the prior quarter, helped the company report Profit After Tax (PAT) largely in line with expectations, with a Return on Assets (RoA) of 3.6%.

Future Outlook: RoA Growth Expected Amid Risks

Looking ahead, Emkay expects strong spending growth to continue driving fee income. The brokerage also anticipates asset quality stress will ease, projecting RoA to climb from a low of 3.3% in FY26E to levels of 3.9%, 4.4%, and 4.8% over FY27E, FY28E, and FY29E, respectively. Considering moderating customer acquisition (CIF) and IBNEA growth due to macroeconomic risks, especially from the West Asia conflict, Emkay has lowered its earnings estimates for FY27E and FY28E by 10% and 15%. Despite these adjustments, Emkay believes the company's ongoing focus on quality and expected profit gains will gradually lead to a higher stock valuation.

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