SBI Cards may hit a low of ₹650, say some analysts

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Shares of SBI Cards and Payment Services Ltd. fell more than 4% on Monday to hit a day’s low of ₹718.05 after the credit card company saw its margin shrink and unpaid dues rise.

The stock was trading 3.16% lower at ₹726.75 apiece on the NSE at around 12 pm. With Monday’s drop, shares of SBI Cards have tumbled 5% this year and are down 7% in the last 12 months.

Global brokerage firm HSBC has downgraded its rating to ‘Reduce’ on the SBI Card stock, trimmed the target price to ₹650 from ₹740 per share earlier, and reduced the earnings per share (EPS) estimates by 1.5-9.7% for FY25-27.

With a miss on NIM and credit cost for four quarters and no definitive signs of recovery, Nuvama analysts have retained a ‘Reduce’ rating on the counter with a target of ₹690.

Nuvama believes a rise in easy monthly instalments and revolver credit is the only way for the company to make more money. Given the competitive intensity, adding new customers and improving market share may be more challenging. 

Kotak Institutional Equities has retained its target of ₹900 but slashed its near-term earnings growth forecast by 7-8%, citing a slower increase in new customers and spending. “We may have seen credit costs peaking but need more quarters to confirm this thesis,” the brokerage said in a note. 

CEO Abhijit Chakravorty told CNBC-TV18 that the net interest margin may remain at 7%, but as the Kotak report stated, “re-rating needs a reversal from current levels.”

The analysts added that the RBI’s curbs on some business-to-business spending via credit cards will keep fee income growth capped. 

Emkay Global has upgraded its earnings estimate for FY25 and FY26 by 2 and 6%, respectively, and believes that slower growth, coupled with margin softness and rising NPAs, could limit the return on assets around 4-4.4% over FY25-27 from 4.6-5.6%.

SBI Cards’ net profit increased 11.5% to ₹596.5 crore from January to March 2024 compared to the previous year. The revenue during the period grew 15.6% to ₹4,347.7 crore.

For the entire 2023-24 financial year, net profit came in at ₹2,408 crore, climbing 7% from ₹2,258 crore in fiscal 2022-23.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow