SBI Cards & Payment Services: Potential value pick

Jul 27, 2024

Fundamental thesis: Stock not reflecting fundamentals correctly
3Yr EPS growth: 35%
3Yr Stock Growth: -11%

Current Multiples
Current PE: 28.5x
Fwd PE (25E EPS 30 Rs): 24x
Current BV: 5.7x
Current EV/EBITDA: 17.5x

Vs
All time Median Multiples
Median PE: 47.4x
Median BV: 11.1x
Median EV/EBITDA: 28.4x

Vs
Competitors
Bajaj Finance: 28.6x
Jio Finserv: 133x
Cholamandalam: 32.4x
Sundaram: 34.17x
Median: 33.25x

This is a company with 0 failure (SBI has 68% Stake) trading below its median and peers

Assuming stock has 0 EPS growth and PE reverts to its competitors: (25 * 33x = 831Rs) Upside 15%

Assuming the stock has no change in its PE and delivers on EPS (30 * 28.5x = 855Rs) Upside 18%

The risk you will be taking here is if the PE and EPS both do not perform which seems to me a little unlikely but it is a risk

Another note:
LIC and ICICI MF purchased more of this stock at 712Rs and 750Rs. I believe that ICICI did not buy this stock because they had to (due to capital sitting to be allocated) but because they saw actual upside. ICICI on a PR said this:
"Equity mutual fund inflows experienced a 16.4% decline in April 2024, reaching Rs 18,917 crore. This decrease is attributed to a significant drop in investments directed toward large-cap funds."
icicidirect.com/mutual-funds/news/mf/equity-mutual-funds-see-shift-in-inflows,-sips-hit-record-high/1506817

Analyst price tgts:
MOFSL: 850 Rs
BOB: 775 Rs
Avg upside 12%

Technical:
Based on my VRVP the price point the stock is hovering at is where it has seen the greatest volume come in
RSI at 46
MACD line at -35
Stock 9% above resistance 7% below breakout line

Entry
I will wait until earnings on Monday, if stock slips I will get in heavily, if earnings are good I will average until the price hits the breakout line

Jul 28, 2024

Note

SBI Cards and Payment Services: Result update

Not the best result for the company:

NNPA is up 22 bps YoY
COF is up 45 bps YoY
0% growth in EPS YoY
New accounts down 18% YoY
Net credit cost up 62% YoY
NIM down 45 bps YoY
ROAA down 97 bps YoY
ROAE down 419 bps YoY
Receivable per card up 10% YoY

I could not find direct Quarterly estimates but based on some annual estimates I believe the market was hoping for a YoY EPS growth to be somewhere above 15% (as that would be the rate it would need to meet annual EPS estimates of 30Rs), actual was -0.3%. With the current rate annual EPS for FY25 would be 25Rs or a 1.3% decrease. To now meet annual estimates we would need EPS to grow by upwards of 20% YoY.

I am going to hold off on buying the stock for now and wait for this result, new analyst recos, and concalls to get priced into the stock. Post that I will study the company and sector a little more and than give an update.

Jul 29, 2024

Note

Update (HIGH RISK PLAY!!!)

The candle on 29th July looks bearish so I will wait to buy until price hits <685Rs or if the direction reverses itself and starts moving towards breakout line

Its safe do the say the stock is undervalued with a fv of 800Rs (based on my analysis) while institutions like Kotak are pricing the stock at 900Rs, MOFSL at 850Rs, Axis at 750Rs.

Additional notes on Co.
-Management believes that credit costs will continue to remain elevated for the next couple of quarters and stabilize by the end of FY25