Motilal Oswal has given Buy recommendation for SBI Cards and Payment Services recommended buy rating on the stock with a target price of Rs 1300 in its research rep with a target price of Rs. 1300 in its research report issued on Dec 12, 2021

Motilal Oswal’s research report on SBI Cards and Payment Services

RBI proposed to issue a discussion paper in the next one month (link to RBI statement) to cover aspects related to charges involved in various digital payment modes covering Credit Cards, Debit Cards, PPIs, UPIs, etc. This is with the intent to make digital transactions affordable to users and economically viable to providers. SBICARD has corrected ~9% over the past two days on fears of a reduction in MDR charges, which can adversely impact profitability. SBICARD’s spend-based fee constitutes 45-54% of total fees and corresponds to 18-23% of total revenue. As per our sensitivity analysis, we estimate 8-17% earnings impact in case MDR on Credit Cards is reduced by 10-20%. As the company mitigates this impact by effecting a reduction in payment processing charges, cost of reward points, and the interest free payment period to customers, the earnings hit could be shielded by 5-12%. This would limit the RoA/RoE damage to ~21-37bp/87-155bp. After a 9% decline in the stock price, it is now trading at 23x FY24E earnings, which appears attractive. Any reduction in MDR charges will be critical to earnings, keeping us watchful in the near term.


SBICARD has reported a strong recovery in card acquisition and retail spends after COIVD-19 disrupted the growth trajectory. We estimate loan book/earnings CAGR of 30%/56% over FY21-24E, supported by robust growth in spends, strengthening asset quality, and improvement in operating leverage.

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