Unfazed by UPI's gain, credit card biz intact
Despite new-age disruptive models evolving, credit cards will still grow at the rate of 20 per cent over next five years, says a study.
image for illustrative purpose
Mumbai: Despite new-age disruptive models evolving, credit cards will still grow at the rate of 20 per cent over next five years, says a study.
It is despite the fact that UPI (Unified Payments Interface) has gained significant market share over the last few years. However, UPI gain has been very notable in volume terms, but not so much in value, indicating small-ticket frequent transactions. Moreover, data doesn't distinguish between P2P payments, which could form the larger chunk. Credit lines in offer are still valued significantly by customers, which makes credit card a viable option, says a study by Edelweiss.
Cash still forms a dominant share of payments, wherein disruption will accelerate, it estimated.
Interestingly, credit cards will form dominant share in a growing digital payment landscape. The Indian digital payment landscape is expected to grow at a 35 per cent-plus CAGR over the next four–five years (forming sub-20 per cent of personal consumption versus >45 per cent for international peers); the trend has accelerated in the post-Covid era.
"We remain cautious as the steady state growth rates unfolding do not seem to justify the magnitude of re-rating," they added. Indian IT companies, both large and mid-tier companies, have benefitted from the rising digitalisation amid the pandemic. While large IT firms are likely to post double-digit revenue growth in the current financial year, many mid-tier IT firms expect growth rates in high teens in FY22.
However, valuation of many mid-tier companies has gone higher than big firms in PE (price-to-earnings) ratio terms. For instance, market leader TCS is trading at 40 times of its PE ratio & Infosys is trading at around 35 times. In comparison, Coforge is trading at 64 times of its PE, while Mindtree is at 55 times. Similarly, L&T Infotech is currently trading at close to 50 times of its PE ratio. Mphasis is trading at close to 44 times. "Of course, valuation of many mid-tier IT companies seems to be stretched. To justify such valuation, these companies have to perform on a sustainable basis for the next two financial years both in revenue and margin terms. However, it is very difficult to say whether valuations have reached the peak," said a Mumbai-based research analyst.
