SBI Card share price drops over 7% as brokerages cut target price after Q2 results

SBI Cards and Payments Services share price declined over 7% in early trade on Monday after the company reported its financial results for the second quarter of FY24. SBI Card shares fell as much as 7.45% to ₹732.05 apiece on the BSE. The stock traded below its IPO price of ₹755 per share.

SBI Cards and Payments Services reported a 15% increase in its net profit for Q2FY24 at ₹603 crore from ₹526 crore in the year-ago quarter. Its revenues witnessed a 22% growth to ₹4,221 crore from ₹3,453 crore, YoY.

However, elevated provisions dragged earnings down, while margin contracted 12 bps sequentially to 11.3% amid decreasing yield as the mix of EMI and revolver rate stood broadly stable.

Read here: SBI Card Q2 Results: Net profit rises 15% YoY to ₹603 crore, cards in force grow 21%

According to brokerage firm Motilal Oswal Financial Services, SBI Cards and Payments Services reported a muted quarter characterized by elevated provisions and further compression in margins. 

“The mix of revolvers and EMI loans remains stable, while management indicated that the recent hardening of interest rates will exert pressure on funding costs in the coming quarters. This could drive further margin compression over 2HFY24 as the outlook on any increase in the mix of EMI and Revolver loans remains uncertain,” said the brokerage firm.

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The company’s management indicated a slight rise in stress levels, which will likely keep credit costs elevated over the near term. 

However, as per Motilal Oswal, on the positive side, spending growth remains healthy while the company maintains a healthy traction in new card additions. 

“Reversal in rate cycle, and lagged improvement in revolver mix remain the key triggers. These would support 35% earnings CAGR over FY24-26E while earnings growth for the current fiscal to remain modest,” it said.

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The brokerage cut its FY24 and FY25 earnings estimates by 8% and 10% and estimated RoA and RoE of 5.2% and 25.0% for FY25. 

It reiterated a ‘Buy’ rating on the stock and cut the target price to ₹900 per share.

Nuvama Institutional Equities notes SBI Card continues to report elevated credit cost and weaker net interest margin (NIM). Credit cost, a persistent weakness, remained elevated at 6.7% in Q2FY24 versus 6.8% QoQ. 

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“In Q1FY24, management had attributed the high credit cost to borrowers of the 2019 vintage. However, in Q2FY24, newer cohorts contributed to stress while the share of the 2019 cohort decreased. Management pointed out that the rise in credit cost is in sync with reports about the rise in stress in small-ticket personal loans. NIM decreased 12bp QoQ due to lower yield,” said the brokerage.

With credit cost elevated—not in sync with other large players—and a sticky CoF, it maintained a ‘Reduce’ rating on the stock and cut the target price to ₹760 per share from ₹775 earlier.

At 9:40 am, SBI Cards and Payments Services shares were trading 7.03% lower at ₹735.40 apiece on the BSE. 

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