Here's why SBI Cards share price may jump 30% in the next one year, according to Bank of America-Merrill Lynch

• SBI Cards IPO couldn’t have been timed at a worse time. It debuted just when the Coronavirus pandemic became a major concern for India.
• Its shares fell 13% on listing on March 16, when there was bloodbath in the Indian stock market with the Sensex falling by over 2,700 points.
• Yet analysts are upbeat about SBI Cards and they expect it to jump to ₹680 in the next one year.

Despite being the second largest credit card issuer in India, SBI Cards has lost its sheen since it listed on the stock markets. Its stock has lost more than 30% of its value when compared to the issue price of ₹755. However, analysts expect SBI Cards to bounce back to ₹680 in the next one year.

According to the latest Bank of America Securities report, the SBI Cards stock has the potential to regain most of its lost ground over the next one year. “Despite factoring the near-term impact of COVID-19, we see strong long-term growth supported by SBIC’s diversified model,” the report says.

In essence, an investment of ₹10,000 during the SBI Cards IPO is worth ₹7,000 now, which is slightly better than what it was on April 13.

Why will SBI Cards share price bounce back?

SBI Cards is the second largest credit card issuer in India and has been growing at a steady pace over the last five years. Here are some of the reasons why the share price could go up:

Project Shikhar – tapping SBI’s large customer base

SBI Cards and the State Bank of India announced a partnership in 2017. Called Project Shikhar, this would allow SBI Cards to tap into the massive customer base of SBI to sell them credit cards.

As of March 2019, SBI had 436 million customers. In the year 2019, SBI customers accounted for 55% of new accounts of SBI Cards. The report states that Project Shikhar will continue to offer growth opportunities to SBI Cards.

Vastly untapped market – only 3% people have credit cards

At 3%, India has the lowest credit card penetration in the world.

This presents credit card companies with immense potential, both in terms of market share as well as revenue, as credit card spends in India are expected to cross ₹15 lakh crore ($200 billion) in the next five years.

With constant improvements in organized retail penetration and payments infrastructure, non-cash payment modes are expected to gain popularity.

Diversified customer acquisition model

SBI Cards has also partnered with several non-banking partners like Big Bazaar to acquire new customers. SBI Cards salesforce at supermarkets like Big Bazaar, Hyderabad Central and others accounted for 45% of the credit card applications in 2019.

In addition to this, the SBI YONO (phone banking) interface integrated SBI Cards’ offerings, providing it with another customer acquisition channel.

SBI Cards also offers a diverse portfolio of credit cards, with annual fees ranging from zero to ₹4,999, catering to a wide range of segments. Essentially, it has a card for everyone, making it one of the most attractive credit card companies, especially for new customers.

Bank of America Securities also states that SBI Cards’ credit risk analysis is ‘effective’. This should bring down the risk of delayed payments and non-performing assets, making it an attractive offering.

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