Paytm, SBI Card shares: Bernstein sees 21% upside on Paytm, 23% downside on SBI Card

Bernstein has initiated coverage on One 97 Communications Ltd (Paytm) with an 'Outperform' rating and SBI Cards & Payment Services Ltd (SBI Card) with an 'Underperform' rating. The foreign brokerage said it finds SBI Card to be stuck on the wrong side of the disruption as a monoline credit card model that faces increasing margin pressure and limited room to diversify into other products. Paytm's early signs of an edge in digital lending, achieved by leveraging its dominant digital payments platform, puts it on the right side of the disruption, Bernstein said.

Bernstein's 12-month target price for Paytm at Rs 1,100 is 8 per cent higher than the consensus estimate of Rs 1,018 and suggests 21 per cent potential upside over Wednesday's closing price of Rs 905.60. For SBI Card, Bernstein's 12-month target price at Rs 650 is at 32 per cent discount to the consensus estimate of Rs 951. The target suggests a 23 per cent downside ahead for SBI Card.

Bernstein said while it's too early to declare winners in the digital lending space, it finds Paytm -- a dominant digital payments platform with a promising head start in the lending business -- to be on the right side of the disruption.

"We expect its loan disbursal volumes to grow sharply and achieve a market share of 4 per cent by FY26E (in high-yield (>13 per cent interest rate) household lending segment). And with stabilising margins in its payments segment, we expect the business to breakeven by FY25E and generate an EPS of Rs 130 by FY30E," it said.

In the case of SBI Card, it said as a credit card monoline, SBI Card will face the direct impact of the rise of alternative digital credit offerings.

"We forecast the earnings growth for SBI Card to decline sharply from 30 per cent in the last decade to 15 per cent in the next 5 years as we expect no revival in the revolvers and see continued pressure on the fee margins," it said.

For banks, the credit cards will remain a key acquisition and engagement tool, even if less profitable. Further, the impact of lower profitability of cards could be offset if the banks capture a sizeable share of digital credit opportunity. The shift away from cards would however leave a significant impact on businesses that entirely rely on providing the infrastructure for card transactions, Berstein said.

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