SBI card - Opportunity to enter for mid to long term
SBI Cards and Payment Services Ltd is currently trading near multi year lows. Below is my analysis for the stock based on my limited knowledge and readings.
Why we are at multi year lows?
The company is posting record breaking sales every quarter. Despite rising sales and rising EBITDA the interest component is also increasing because we are in higher interest rate cycle. COF = cost of funds.
Narrative bhagwaan chhe -
Since last couple of years, there was a broad narrative that UPI and wallet payments are giving slow death to Credit Cards. These kind of narratives impact P/E multiple of industries.
“Aaj tum jisse lad rahe ho, kal wahi tumhare achhe dost honge” Things are changing fast. UPI can now be linked with credit cards (currently only RuPay). This is slowly becoming popular. Excerpt from concall -
He mentioned avg ticket size is 880, small transactions are also being paid thaough credit cards via UPI barcode.
Last week new set of rules came which further cements credit card & UPI partnership -
The National Payments Corporation of India (NPCI) has announced new features for the RuPay Credit Card on the Unified Payments Interface (UPI) platform. The new features announced include EMI facility on the linked credit accounts on UPI app, Credit Account Bill Pavment, Instalment Payment and limit management. The NPCI has asked issuing entities like banks and card issuers to enable these features by May 31, 2024
EMI is a highly profit generating segment for credit card companies.
What about Visa and Mastercard?
It is possible to use your visa/ mastercard for UPI but it is a 2 step process -
All major banks have enabled downloading virtual Rupay cards on phones for free.
Ending note -
With pilling up of US federal debt, the interest rate cycle is bound to turn sooner or later and we will enter lower interest rate regime. The markets are already pricing in interest rate cuts from June. Companies like SBI card thrives on lower cost of funds. I believe the stock is available at cyclical bottom from interest rate point of view. On the other hand, with the exit of Paytm wallet and convergence of UPI & credit cards we are looking at a whole new world of possibilities. The Gen Z likes to pay everything by scanning a QR code and they also like to buy now & pay later. Market share of credit cards is not going to decrease but will rise due to supportive policies which have come up in the last few months. India in itself is a growing economy that means more credit users and more spend per card.
Disclaimer - Holding. Not an expert, not registered with SEBI.
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