Sanjeev Sharma | 29 Jan, 2024
SBI Cards and Payment Services shares were down more than 5 per cent on Monday after brokerages downgraded the stock.
SBI Card was down 5.6 per cent at Rs 716.70 on BSE.
SBI Card reported a sub-par quarter, characterised by elevated provisions, Motilal Oswal Financial Services said in a report.
The
outlook on margins remains weak due to a sharp rise in funding costs.
The mix of revolvers and EMI loans remains stable, while the management
indicated that the recent hardening of interest rates, along with the
impact of risk weights, will exert pressure on funding costs in the
coming quarters, the report said.
As a result, margins should
remain muted in 4Q and 1HFY25. The outlook on any increase in the mix of
EMI and Revolver loans remains uncertain, while the asset quality
stress is likely to drive provisions high in the coming quarters as
well, the report said.
However, on the positive side, spending
growth remains healthy and the company sees healthy traction in new card
additions. The reversal in the rate cycle and lagged improvements in
revolver mix remain the key triggers, though they appear to be few
quarters away from now, the report said.
We further cut our
FY24E/FY25E EPS by 2%/3%, factoring in higher credit costs. While we
expect SBI Card to deliver healthy earnings CAGR over FY24-26, however
the disappointing earnings run-rate over past several quarters which has
driven consistent cut in our estimates along with limited near term
earnings visibility keeps us watchful, the report said.
We downgrade our rating to Neutral with a revised TP of Rs 850 (premised on 21x Sep’25E EPS), it said.
(Sanjeev Sharma can be reached at Sanjeev.s@ians.in)
