Buy SBI Cards; target of Rs 750: Emkay Global Financial

Moneycontrol • 6 days ago

Original source

Key Investment Pillars

  • Improving credit costs: SBI Cards' credit costs have declined to 5.6% from 6.5% in 1QFY27 and 7.7% in 4QFY26, driven by asset-quality improvement.
  • Receivables growth: Although receivables growth is currently subdued due to a high base and the festive season shifting to 3Q, management expects it to pick up from 3QFY27, supported by festive spending and higher EMI conversions.
  • Margin pressure: The company faces margin pressure due to rising funding costs, but it aims to mitigate this through higher yields on incremental EMI lending and optimization of its borrowing mix.
  • Asset quality: The asset mix has improved, with Stage-2 and Stage-3 assets declining, indicating better portfolio quality.

Thesis Validation Checklist

To validate the investment thesis, investors should watch for:

  • Receivables growth: An improvement in receivables growth from 3QFY27 onwards, driven by festive demand and higher EMI offtake.
  • Credit costs: Stability in credit costs, with the management's guidance of 5.5-6.0% for FY27.
  • Margin trends: The company's ability to maintain stable NIMs despite rising funding costs, through optimization of its borrowing mix and higher yields on EMI lending.
  • Asset quality: Continued improvement in asset quality, with a decline in Stage-2 and Stage-3 assets, indicating a healthy portfolio.