Shares of SBI Cards and Payment Services fell almost 4 per cent in early deals on BSE on Monday (July 31) as the company's June-quarter earnings failed to impress the Street. The stock opened at ₹842 against the previous close of ₹856.50 and fell 3.6 per cent to ₹825.30 soon on BSE.
After market hours on Friday (July 28), SBI Card reported its consolidated net profit fell 5 per cent to ₹593 crore, compared to ₹626.9 crore in the corresponding period last year.
Revenue from operations increased 24 per cent to ₹4,046 crore, compared to ₹3,263 crore in the year-ago period while interest income increased by 30 per cent at ₹1,804 crore in Q1FY24, compared to ₹1,387 crore in Q1FY23.
The net interest margins of the company stood at 11.5 per cent, down 176 basis points (bps). Fees and commission income increased 23 per cent at ₹1,898 crore in Q1 FY24, against ₹1,538 crore in Q1FY23.
Brokerage firms expressed diverse views on the stock after the Q1 earnings.
Some brokerage firms lowered their estimates for SBI Card after the company's Q1 results, resulting in rating downgrades and cuts in target prices.
Brokerage firm Emkay Global Financial Services downgraded the stock to a 'hold' from a 'buy' and cut the target price to ₹950 from ₹1,000, implying 5.8 times its June-25 ABV (adjusted book value) and 25 times EPS (earnings per share).
"Factoring in operational softness in business/fees and NPAs, we have lowered our earnings estimates for FY24-26E by 4-8 times and RoA (return on assets) and RoE (return on equity) expectations to 5 per cent and 24-25 per cent, respectively," said the brokerage firm.
"SBI Card reported a slight PAT miss (3 per cent) at ₹590 crore and a 5 per cent RoA in Q1FY24 due to lower fees and higher provisions and charge-off at 6.8 per cent as stress in the old pool (2019) emerges," the brokerage firm pointed out.
Emkay highlighted that the management indicated that the stress pool was on watch and is being handled, thereby the fallout provisions will be contained.
Besides, Emkay observed the company's new card addition remained healthy at 11 lakh in Q1 versus 6 lakh last year, but the pace moderated possibly post devaluation of cash back card from May-2023, the impact of which should be pronounced in Q2.
SBI Card lost QoQ (quarter-on-quarter) market share in CIF (cards in force) and spends to 19.6 per cent and 17/8 per cent, respectively, as some other players, including HDFC Bank, Axis Bank and Kotak Bank, have become slightly aggressive, Emkay highlighted.
On similar lines, Nuvama Wealth Management downgraded the stock to a ‘reduce’, from a ‘hold' and lowered the target price to ₹775 from ₹835.
"We believe high credit cost along with the vintage of bad loans is a concern. We downgrade to ‘reduce’, from ‘hold’, even when earnings have bottomed out, as we view risk management as the key valuation driver for unsecured loans," said Nuvama.
In contrast to the views above, Kotak Institutional Equities has retained its buy call on the stock with an unchanged target price of ₹960.
"The slippages for the quarter coming from a book that we had assumed to be done away with came as a surprise, but the recent originations suggest a lower default risk. We do not want to change our view despite unexpected surprises, as we have seen recently through possible MDR (merchant discount rate) changes bring in an uncertainty discount that investors would argue for a higher cost of equity, bringing down its multiple," said Kotak.
"We have gone through a learning cycle that will make us better prepared for the next cycle. We like SBI Card, given the structural play, it offers on the digitization of payments through a franchise that has a good market share and s solid business model," the brokerage firm said.
Motilal Oswal Financial Services, too, has maintained a buy call on the stock with a target price of ₹970.
Motilal pointed out that SBI Card reported a mixed quarter.
"Credit costs remained elevated due to stress in CY19 (calendar year 2019) sourcing vintage but are expected to improve in the upcoming quarters. Spends growth remained healthy, and we expect the traction to continue, which is likely to drive loan growth. We estimate SBI Card to deliver 28 per cent earnings CAGR over FY23–25, leading to an RoA and RoE of 5.5 per cent and 26.4 per cent, respectively," said Motilal Oswal.
Shares of SBI Card traded 2.15 per cent lower at ₹838.05 around 9:40 am on BSE.
Disclaimer: The views and recommendations above are those of individual analysts and broking companies, not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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