SBI Card slumps as asset quality deteriorates, brokerages cut target price

Credit costs refers to the provisions and write-offs accounted in the profit and loss account by the NBFC. For SBI Cards, net credit costs for Q3 FY24 came in Rs 764 crore, up 25 percent sequentially and 91 percent year-on-year

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SBI Card shares fell over 5 percent on January 29 morning after the non-banking finance companies asset quality deteriorated in the December quarter and brokerages sharing a bleak view on the stock.

SBI Cards and Payment Services Limited's gross non-performing assets (NPAs) and and NNPA came in at 2.64 percent and 0.96 percent, up from the previous quarter as well as the year-ago period.

At 9.30 am, the stock was trading at Rs 719 on the National Stock Exchange, down 5.4 percent from the previous close. The stock is over 22 percent below its 52-week high of Rs 933.

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Brokerages have a bleak outlook for the stock. Morgan Stanley has downgraded the SBI Card  to "equal weight" and reduced the target price to Rs 750 from Rs 950.

Net slippages in the December quarter exceeded estimates and management anticipates two more quarters of heightened credit costs, dampening investor confidence.

Credit costs refers to the provisions and write-offs in the profit and loss account by the NBFC.

For SBI Card, net credit costs for Q3 came in Rs 764 crore, up 25 percent sequentially and 91 percent year-on-year.

The lack of assurance on further normalisation of credit costs contributed to a potential cap and de-rating of the P/E multiple until uncertainties is resolved, Morgan Stanley analysts said.

InCRED also has a "reduce" call with a target of Rs 500 a share. Despite flat margins, SBI Cards posted lower-than-expected profits.

The credit-card issuing company recorded a 7.8 percent on-year growth in profit at Rs 549 crore in the December quarter, while Bloomberg estimate was Rs 600 crore.

Adverse policy actions by the Reserve Bank of India (RBI) are expected to hinder card issuance, leading to margin pressure, and elevated credit costs in the next quarter, InCRED said. The premium valuation of SBI Cards may erode due to slowing growth and declining profitability.

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In November, the RBI cautioned against unsecured lending and risk-weightage increase for consumer credit.

Domestic broking firm Motilal Oswal Financial Services said credit cost guidance was 6 percent in Q1 FY24 but now the company is already at 7.5 percent, amid the RBI’s caution on rising delinquencies in unsecured retail.

It has downgraded rating on the stock to “neutral” with a revised target price of Rs 850.

"SBI Cards reported a sub-par quarter, characterized by elevated provisions. The outlook on margins remains weak due to a sharp rise in funding costs," Motilal Oswal said.

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