SBI Card Q4 results review: Brokerages remain cautious on concerns over margins and asset quality

Shares of SBI Cards and Payment Services declined over 4 percent as brokerages expressed caution following the credit card company's mixed performance in its March quarter (Q4FY24) results. Although the company experienced strong earnings due to lower operating expenses, its margins and asset quality were under pressure, raising concerns among investors and analysts. This mixed performance contributed to the negative reaction in the stock price.

The stock shed as much as 4.3 percent to ₹718.10 in intra-day deals on Monday (April 29). The stock is currently 23 percent away from its 52-week high of ₹932.35, hit on June 13, 2023, but is still up almost 6 percent from its 52-week low of ₹678.80, hit on March 14, 2024.

The scrip has lost around 3 percent in the last 1 year and over 5 percent in 2024 YTD. However, the stock has risen 6.5 percent in April so far after an over 5 percent drop last month.

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Q4 earnings

SBI Cards and Payment Services posted an 11.05 percent year-on-year (YoY) increase in its net profit for the March quarter of the financial year 2023-24 at ₹662.37 crore versus ₹596.47 crore reported in the corresponding period of the previous year. The company's revenue also rose over 14 percent YoY to ₹4,475 crore in Q4FY24 as compared to ₹3,917 crore in the same period a year ago. This was led by a jump in its net interest income, which advanced 28 percent to ₹2,139 crore in Q4FY24 vs ₹1,672 crore in Q4FY23.

However, its asset quality for the quarter under review did not witness any improvement. The gross non-performing assets (GNPA) came in at 2.76 percent of gross advances as of March 31, 2024, as against 2.35 percent as of March 31, 2023. Moreover, its net non-performing assets were at 0.99 percent as of March 31, 2024, as against 0.87 percent as of March 31, 2023.

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The company also witnessed a slight decline in its Return on Average Assets (ROAA), down from 5.4 percent in the same quarter of the previous fiscal year to 4.7 percent in Q4FY24. Similarly, its Return on Average Equity (ROAE) also fell from 24.6 percent in Q4FY23 to 22.2 percent in Q4FY24.

Q4 earnings review

Most brokerages remained cautious about the stock post its March quarter results. Brokerages noted that SBI Card's management expects credit costs to remain elevated in the near term, but expects an improvement in the second half of FY25.

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Here's what they had to say about it:

Motilal Oswal: The brokerage has a ‘Neutral’ call on the stock with a target price of ₹850, implying an upside of over 18 percent.

SBI Cards and Payment Services (SBICARD) reported a strong performance in Q4 FY24, particularly in its profit after tax (PAT), which exceeded expectations due to lower operating expenses (opex) that were approximately 20 percent lower than estimates. However, the company's margin declined by 39 basis points quarter-on-quarter to 10.9 percent due to a sharp decrease in yields on a quarterly average basis. The asset quality of SBI Cards remained under pressure, as indicated by increases in its gross non-performing asset (GNPA) and net non-performing asset (NNPA) ratios, noted MOSL.

The brokerage revised its EPS estimates for FY25 and FY26 down by 7 percent and 8 percent, respectively, due to expectations of sharp margin pressure and elevated credit costs. This suggests ongoing challenges for the company in managing its profitability and financial performance in the near future.

Read here: ICICI Bank: Brokerages remain bullish on stock post Q4 earnings

"SBICARD reported a mixed quarter as lower opex led to an earnings beat but margins and asset quality remained under pressure. Spending growth moderated due to a sharp decline in corporate spending; however, the management expects to recover this in the near term. The mix of revolvers and EMI loans remains sticky. The management indicated that the recent tightening in interest rates, along with the impact of risk weights and asset quality pressure, will keep funding costs elevated at 7 percent. The reversal in the rate cycle and improvement in the revolver mix remain the key triggers, though they appear to be a few quarters away from now," stated MOSL.

Along with a ‘Neutral’ call by MOSL, HSBC has also downgraded SBI Card stock to "Reduce" and lowered the target price to ₹650 per share, citing concerns over the company's net interest margin, costs, and asset quality. This revised target price implies a potential downside of 9.5 percent. HSBC also adjusted the earnings per share (EPS) estimates for FY25-27, reducing them by 1.5-9.7 percent.

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Moreover, Nomura and Nuvama, as well, have maintained their "Reduce" ratings on SBI Card stock. Nomura set a target price of ₹640 (11 percent downside) and indicated that FY25 will be a challenging year for SBI Card, with profitability expected to remain under pressure. Furthermore, Nuvama has revised its target price for the stock from ₹700 to ₹690 (4 percent downside).

UBS, on the other hand, maintained a "Neutral" rating on SBI Card and set a target price of ₹805 (12 percent upside). Overall, these ratings and target prices suggest a range of cautionary and neutral perspectives on the stock's performance, reflecting concerns about the company's future profitability and financial stability.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.