SBI Cards shares drop 4% after March quarter results. Should you buy, sell or hold?

Interest income grew 28% YoY to Rs 2,139 crore in Q4 FY24 while the fees and commission income increased by 6% to Rs 2,209 crore in the March quarter, SBI Card said in a statement.

The report further added that nearly all the other retail product lines that they follow are not showing these high delinquency ratios, making it harder to understand this divergence.

For FY25, the management is guiding a steady growth in card issuances and recovery in corporate credit card spending, which were impacted by the recent guideline wherein there was a ban on specific types of B2B corporate credit card transactions along with a credit cost at approximately 7% levels, which remains flat year on year.

Further, they mentioned that there is still some lagged impact on the cost of funds, and they expect that they are closer to the bottom of the NIM profile.

Here’s what brokerages say:

Nomura

As asset quality woes continue, Nomura expects FY25 to be a difficult year. Profitability is also likely to be under pressure for SBIC for the upcoming year. Hence, Nomura has rated SBIC for ‘reduce’ with a target price of Rs 640.

Morgan Stanley

The global brokerage firm rates SBIC as ‘equalweight’ with a target of Rs 750 as Morgan Stanley states that the industry grew at 20% YoY in March 2024 (likely because of the continued impact of RBI’s recent notification on corporate spending) , while SBI Cards’ growth was much slower at 1% YoY. Further, the company's market share also fell YoY and MoM to 15.2% for March 2024.

UBS

UBS has maintained a ‘neutral’ rating with a price target of Rs 805 as the credit costs continue to remain elevated and retail spending stays strong. The company’s lower opex drove PAT beat while the revolver mix improved slightly.

Kotak Institutional Equities

“The industry continues to show promising trends as card issuances are healthy and translation into spend growth leading to high RoEs makes this business attractive. However, the performance of SBI Cards has been far-from satisfactory. We do believe that a reversal of the current credit cost cycle could happen, which should aid in a sharp recovery in earnings. Also, interest rates are at peak levels and incremental NIM pressure is likely to be negligible”.

KIE maintains a ‘buy’ view on the stock with a target price of Rs 900.

ICICI Securities

The company has faced several challenges over the last 4 years including higher credit cost during covid, higher cost to income during BNPL surge, structural decline in revolver mix, higher cost of funds post-covid and a higher cost of funds and

credit cost due to stress in unsecured lending accompanied by the increase in risk weights by the RBI. However, the company has still been able to deliver earnings CAGR of 34.7%/22.8% over the last 3/5 years.

Backed by the above, ICICI has maintained its ‘add’ rating on the stock with a target price of Rs 820.

InCred Equities

SBI Cards continued to demonstrate a weak profitability trend amid falling margins and elevated credit costs. Post adverse policy action by the RBI, we expect a slowdown in card issuance and overall spending amid weak capital adequacy & deteriorating asset quality. We also expect its premium valuation to erode with growth slowing & profitability weakening.

On these grounds, InCred advises to ‘reduce’ the stock with a target price of Rs 500.

Axis Securities
The credit card industry has been dealing with asset quality concerns for the past few quarters, largely driven by customer over-leveraging. To tackle the problem of over-leveraging, SBIC has taken multiple corrective measures and will continue to fine-tune policies and processes. The newly sourced portfolio (45% share of book in Q4FY24) has been continuing to perform better and as the share of this sourcing increases, SBIC is likely to witness portfolio quality improvement.

Axis Securities recommends to ‘buy’ the stock with a target of Rs 850.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)