SBI Cards and Payments: SBI Cards shines finally, grows to half of SBI m-cap: Which one should you buy?

Money is chasing momentum on Dalal Street, and one of the big beneficiaries has been SBI Cards and Payments, the only listed credit card company, even as its parent firm State Bank of India (SBI) wallows in investors’ neglect.

With a 32 per cent rally since it March 16 listing, shares of SBI Cards on Thursday closed at a record high of Rs 893. That swelled its market capitalisation (m-cap) to Rs 84,513 crore, nearly 50 per cent of the market value of SBI, the country biggest public sector lender by assets, which stood at Rs 1,72,111 crore.

On the day of listing, the market value of the card company stood at Rs 64,150 crore, 32 per cent of its parent’s market worth. Since then, SBI shares have retreated 14 per cent to trade around Rs 190 on October 15.

“Hot money is chasing momentum stocks, rather than value and growth stocks. This is also visible in the divergence in performance between holding company L&T (down 32 per cent YTD) and its group companies L&T Infotech (up 85 per cent) and Mindtree (up 75 per cent),” said Kranthi Bathini, investment adviser at Wealth Mills Securities.

The rapid adoption of digitisation in the wake of the Covid-19 pandemic has drawn investors towards the only listed card company in India.

“SBI Cards has the ability to give a push to its net asset value in the short term, but I am not sure by when the underperformance of SBI will end,” said Bathini.

“We may see some profit booking in SBI Cards after the recent rally. But I still prefer the company over SBI, as the banking sector is likely to continue to underperform till the GDP comes into the positive territory,” he said.

The India economy contracted 23.9 per cent during the April-June quarter of this financial year, mainly on account of a disruption in normal business activities following the lockdown to check the virus spread.

The Reserve Bank of India expects the GDP to contract 9.5 per cent this financial year due to the pandemic impact on both domestic as well as global economies.

At his bi-monthly monetary policy statement last week, RBI Governor Shaktikanta Das, however, said GDP is likely to turn positive at 0.5 per cent in the January-March quarter.

Latest RBI data showed monthly credit card spends have reached pre-Covid levels with banks reporting Rs 50,311 crore worth of spends in August 2020 against Rs 50,574 crore in March 2020. The figure is still lower than Rs 60,011 crore spends recorded in February 2020.

Axis Securities is positive on SBI Cards and has a price target of Rs 1,010.

“The Covid-19 disruption has put pressure on spends, especially with a large portion of discretionary, travel and entertainment-related spends being impacted significantly. With social distancing norms, there is a visible shift towards the use of digital payment modes, especially credit cards. We believe this preference would sustain and drive growth for the industry and SBI Cards going forward,” Axis Securities said.

Considering the current market environment, ‘sell’ side analysts do not see any reason why the SBI stock should be sold. On the publicly available Reuters Eikon database, SBI had 23 ‘buy’, 16 ‘outperform’ 2 ‘hold’, 1 ‘underperform’ and 0 ‘sell’ rating as of Thursday, October 15.

Brokerage Sharekhan prefers SBI among public sector lenders and large corporate and retail private banks, which it says have the potential to gain market shares as the situation normalises.

LKP Securities last month set a price target of Rs 285 for SBI, indicating a 47 per cent upside from current market price. It said the bank is well placed to fight the impending stress due to continuous asset quality improvement, steady performance in Q1FY21 and attractive valuation.

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