Shares of SBI Cards and Payment Services Ltd. declined the most in six months on Monday after its first-quarter profit missed analysts' estimates.
The credit-card company's net profit declined 5% year-on-year to Rs 593.3 crore in the quarter ended June, according to an exchange filing on Friday. That compared with Bloomberg's estimate of Rs 605.6 crore.
However, most brokerages maintain a 'buy' on the stock as business performance remains 'solid'.
"Business performance still remains solid, with card growth of 20% year-on-year, spend growth of 25% year-on-year, and loan growth of 30% year-on-year," Kotak Institutional Equities said in a July 29 note.
The firm had reported a mixed quarter after credit costs remained elevated due to stress in CY19 sourcing vintage but are expected to improve in the upcoming quarters, according to Motilal Oswal Financial Services Ltd.
The earnings growth has faced challenges of adverse change in mix (delay in revolver buildup after Covid), higher cost of funds (rate hikes), higher operating expenses, regulatory challenges, and higher credit costs, including a long-tailed impact of Covid, according to ICICI Securities.
SBI Card Q1 FY24 (Consolidated, YoY)
Revenue rose 30% to Rs 1,804.2 crore. (Bloomberg estimate: Rs 2,742.9 crore)
Net interest income rose 14% to Rs 1,233.2 crore.
Net profit fell 5% to Rs 593.3 crore. (Bloomberg estimate: Rs 605.6 crore)
Gross NPA at 2.41% vs 2.35% (QoQ).
Net NPA at 0.89% vs 0.87% (QoQ).
Shares of SBI Card fell 0.79% to Rs 850.40 apiece as of 10:56 a.m. compared to a 0.23% gain in the benchmark NSE Nifty 50. The stock declined as much as 3.73%, the most since Jan. 25. It has risen nearly 6.86% year-to-date.
Total traded volume stood at 4.8 times its 30-day average. The relative strength of 46.16.
Of the 28 analysts tracking the company, 19 maintain a 'buy' rating on the stock, three suggest 'hold', and six recommend 'sell', according to Bloomberg data. The average 12-month price target of analysts implies an upside of 13%.
Here's What Analyst Say About SBI Card Q1 Earnings
Jefferies
The research firm retains 'buy' with a target price of 1,100, implying an upside of 28%.
The receivables grew 30% year-on-year (6% QoQ), this is a tad better than the Jefferies estimates. Spends grew 24% year-on-year, led by 28% year-on-year growth in retail spends.
SBI Card added 1.1 million (22% YoY) new card accounts in the first quarter, with 54% of new sourcing coming from the banca channel. "We expect card spends and receivables to grow at a 23% CAGR over FY23–26E," the note said.
Margin should largely bottom out in 1HFY24 and improve over FY24–26E as revolver mix stabilises and rates peak.
Profit should grow at a 32% CAGR over FY24–26; return on equity should expand from the 1HFY24 trough of 24%, supporting valuation multiples.
"We believe EPS should grow at 26% and 23%+ ROE over FY23–26E, supporting valuation multiples," it said.
Jefferies is positive on the outlook for credit cards and expects SBI Card to report strong growth in card issued and spending by leveraging its parent's large customer base, strong open market channel, and co-branded card tie-ups.
HSBC Global Research
HSBC Global Research maintains a 'buy' rating with a price target of Rs 990, implying an upside of 15.5%.
The research firm has reduced the NIM estimates for FY24–26E to reflect higher funding costs and a slower pace of increase in revolver loans than earlier anticipated. This results in 1–3% cuts in operating profit for FY24–26E.
The cost of funds is expected to increase by 5–10 basis points in 2QFY24. However, the NIMs should remain stable.
The key catalyst for the company's earnings would be margin expansion, estimated in FY25E. This would follow a decline in interest rates, which would translate into a rapid decline in the SBI Card's cost of funds.
Downside risks include a slowdown in spending growth, continued high credit costs, and any impact on fee income due to regulations.
Kotak Institutional Equities
The research firm maintains 'buy' with a target price of Rs 960, implying an upside return potential of 14.23%.
The quarter saw a sharp rise in loan loss provisions, at 7% of loans. This was the highest seen in the past six quarters, the note added.
The company reported healthy spend growth of 24% year-on-year, led by 28% year-on-year growth in retail spends. Corporate spend growth has been slower, in line with the bank's strategy.
SBI Card's management indicated that the quarter saw healthy traction in the travel, entertainment, dining, apparel, education, and utilities segments.
The research firm continues to like SBI Card, given the structural play it offers on the digitisation of payments through a franchise that has a good market share and a solid business model.
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