Reduce SBI Cards; target of Rs 725: Emkay Global Financial

Emkay Global Financial's research report on SBI Cards

SBI Cards (SBIC), yet again, reported a miss on earnings (of 10%), with PAT at Rs5.5bn/4.1% RoA due to continued deterioration in asset quality leading to higher LLP/charge-off. Though SBIC has taken incremental measures to cut portfolio risk, NPAs are on the rise, with GNPA ratio now at 2.6% from a low 2.2% a year ago. With the revolver portfolio being relatively lower at 23% from the 40% peak pre-Covid, we do not expect a full blown asset-quality fallout akin to that during Covid, but delinquencies would continue rising as stress in the multi-card & lower-bucket customer portfolio emerges.

Outlook

Mgmt has guided to NIMs too remaining under pressure for an extended period due to rising funding cost and, now, NPAs too. Company’s CET 1 has fallen sharply by 450bps QoQ to 16.3%, which would call for capital raise soon and, hence, further RoE dilution. Factoring-in the slower growth/higher LLP, we cut our earnings estimate by 19-30% and revise our ERE model-based TP to Rs725/sh (from Rs865), implying 4.5x Dec-25 ABV/24x EPS; downgrade to REDUCE from Buy.