Neutral SBI Cards; target of Rs 850: Motilal Oswal

Motilal Oswal's research report on SBI Cards

SBI Cards (SBICARD) reported another muted quarter as PAT missed our estimate by 8% due to high provisions (14% higher than our estimate). PAT declined 9% QoQ to INR5.49b in 3QFY24. NII grew 7% QoQ (largely inline). Margin was flat QoQ at 11.3% as an increase in yields was largely offset by an increase in CoF. The share of revolver further moderated, while EMI mix was stable. Spending growth was healthy at 41% YoY/22% QoQ, with retail spending up 35% YoY and corporate spending up 64% YoY. Asset quality remained under pressure, with GNPA/NNPA ratios increasing 21bp/7bp QoQ to 2.64%/0.96%. RoA/RoE too moderated to 4.1%/19.2%. Further, the increase in risk weights impacted CRAR by ~400bp to 18.4%. We further cut our FY24E/FY25E EPS by 2%/3%, factoring in higher credit costs.

Outlook

While we expect SBICARD 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. We downgrade our rating to Neutral with a revised TP of INR850 (premised on 21x Sep’25E EPS).