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As digitisation spurs further the payments ecosystem, SBI Cards and Payment is most likely to benefit from it, according to analysts tracking the sector. Being the only listed entity in this space, it is riding the crest presently. Shares of the company have jumped 52% to Rs 967.65 on June 29 during the past one year. Market watchers see a significant penetration opportunity over the next decade for the company. For the latest quarter ended March 31, the company reported a 110% growth in net profit at Rs 175 crore. It had posted a net profit of Rs 84 crore in the same period last year.

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Japanese brokerage firm Nomura is positive on SBI Cards with a price target of Rs 1,250, indicating an upside of nearly 30% from the current market price.

“SBI Cards remains the best placed digital play with a strong compounding opportunity. Growth, as well as profitability gap vs the lending business, will remain for long, warranting premium valuations,” Nomura said in a report.

The brokerage firm also lists multiple reasons to be bullish on SBI Cards and Payment. It added that there is a huge penetration opportunity for SBI Cards. The business is likely to remain the most profitable in the financial segment in the next decade.

“We estimate sustainable ROEs (FY23F onwards) of 27-28% and EPS CAGR of 27% over FY20-25F for the company. It is also the only listed credit card play with industry-best profitability. SBI Cards will likely remain the only listed meaningful player and ROEs/growth delivery will remain the strongest within the financials space, warranting premium valuations. Further, the SBI parentage does provide the necessary moats with strong brand recall, large customer base, strong distribution and cheap funding resources, which should aid SBI Cards to leverage well on the opportunity and deliver sustained profitability,” Nomura said in a report.

Pent up demand may support

JP Morgan also initiated the coverage on SBI Cards with a price target of Rs 1,200. “SBI Cards allows investors to participate in a credit-light and high-ROE profit pool of financial services driven by payments,” the global brokerage said.

It also believes that card spends will show a strong recovery as pent-up demand comes back with the economy reopening, and forecast a 27% FY21-24E annualised against 29% for FY17-21 and after a 6% dip in FY21.

“This, in turn, should drive a 41% EPS CAGR over the same period. Valuations at 38 times FY23E P/E are expensive vs lenders, but not out of sync with multiples for payment companies and justified, given the high contribution of credit-light fee income, a ‘free option’ on the parent and high ROA/ROE,” JP Morgan said.