Risk Reward Update

Research evidence excerpt

Risk Reward Update

UpdateM

RiskRisk RewardReward– SBI Cards- SBIand CardsPayment Servicesand PaymentLtd (SBIC.NS) Services Ltd (SBIC.NS)

High Valuation Despite Profitability Headwinds; UW

PRICE TARGET Rs500.00 UNDERWEIGHT THESIS

Probability-weighted 85% base, 10% bear and 5% bull, residual income model. Skew to bear ▪Credit costs are likely to moderate in F27

case reflects current geopolitical uncertainty. (MSe and consensus), as also guided by

We value the business over three phases: a five-year high-growth period, a 10-year maturity management, however, it could likely be

period and a terminal period. Key assumptions: cost of equity 12.25% (beta 1x, risk-free rate more gradual amid emerging macro risks.

6.75%, market risk premium of 5.5%), terminal growth rate 6%. ▪Profitability remains a key concern for SBI

Cards, with consensus downgrades Rs743.26

continuing. Management flagged a downside

Consensus Price Target Distribution Rs500.00 Rs1,006.00 bias to revolver share, implying pressure on MS PT

NIMs over the next few quarters.Source: Refinitiv, Morgan Stanley Research Mean Morgan Stanley Estimates

▪Despite this, the stock trades at one of the

highest P/Es among large‑cap financials,

even on consensus estimates that are

RISK REWARD CHART materially above ours. In our view,

valuations do not reflect structural shifts in

the business, particularly a sustainably

INR lower ROE profile driven by a reduced

revolver mix.

Rs775.00Rs775.00(+30.65%)Rs775.00(+30.65%)(+30.65%) Consensus Rating Distribution

750 36% Overweight

24% Equal-weight

Rs593.20Rs593.20Rs593.20

40% Underweight

500 Rs500.00Rs500.00(-15.71%)Rs500.00(-15.71%)(-15.71%)

MS Rating

Source: Refinitiv, Morgan Stanley Research

Rs320.00Rs320.00(-46.06%)Rs320.00(-46.06%)(-46.06%)

Risk Reward Themes