SBI Card sheds 5% as Q2 margins disappoint, analysts trim price target

The share price of SBI Cards and Payment Services Ltd (SBI Card) opened 5 percent lower on October 28, despite the company reporting a 52 percent jump in net profit to Rs 526 crore for the quarter ended September.

The stock was quoting at Rs 814 at 9:30am on the National Stock Exchange, down 5.14 percent. The stock has shed 11.73 percent in 2022 so far.

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The pure-play credit card company promoted by the country’s largest lender State Bank of India (SBI) said the jump in net profit came on the back of higher income. The total income in the second quarter of the current fiscal rose 28 percent to Rs 3,453 crore from Rs 2,695 crore a year ago, it said in a regulatory filing.

There was improvement in the company’s asset quality with net NPAs (bad loans) declining to 0.78 percent from 0.91 percent.

However, margins fell 90 basis points on-quarter to 12.3 percent in Q2 on the back of a decline in the revolver mix and higher cost of funds, noted domestic brokerage Motilal Oswal Financial Services.

Revolver mix stood at 24 percent as against 26 percent in Q1FY23. Revolver is the term used for card holders who roll over part of the bill to the next month, instead of paying off the balance in full. It is estimated that seven out of ten card holders revolve the debt and are thereby called “good or smart revolvers”.

Total operating cost increased by 33 percent at Rs 1,834 crore from Rs 1,383 crore in Q2FY22.

Also Read: Seven newly launched credit cards to watch out for

Global brokerage Morgan Stanley has an Overweight call on the stock with target price of Rs 1100. “Revolver mix and higher funding costs could weigh on net interest margin. We trim forecasts for FY23-25 by 1-2 percent” it said.

Meanwhile, CLSA has a Sell call on the stock with a target price of Rs 795 per share. The firm has cut estimates by 3-5 percent.

With an Outperform call on the stock, Credit Suisse has cut its target to Rs 1,080 from Rs 1,150. Analysts at Credit Suisse have cut FY23-35 earnings per share estimate by 4 percent on back of higher operating expense and lower NIMs.

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