1SBI Card Faces Downward Spiral: Asset Quality Issues and Brokerage Lowers Target Price

  • SBI Card shares fell 5% due to deteriorating asset quality in December quarter.
  • Gross NPAs rose to 2.64%, net NPAs to 0.96% compared to previous periods.
  • Brokerages downgraded SBI Card, slashing target price amid bleak outlook.
  • Morgan Stanley lowered target to Rs 750 from Rs 950, citing elevated credit costs.
  • InCRED issued a “reduce” call, targeting Rs 500/share, citing lower profits.
  • RBI’s caution on unsecured lending adds to SBI Card’s margin pressures.
  • Motilal Oswal downgraded to “neutral”, revising target to Rs 850 on rising credit costs.
  • SBI Cards reported subdued earnings due to elevated provisions and weak margins.

SBI Card

SBI Card shares fell by more than 5% on the morning of January 29th. What’s the cause? The non-banking finance company’s asset quality deteriorated in the December quarter, prompting brokerage firms to take a bearish stance on the stock.

deteriorating asset quality :

SBI Cards and Payment Services Limited reported an increase in gross non-performing assets (NPAs) and net NPAs, which stood at 2.64% and 0.96%, respectively. These data represent an increase over the prior quarter and the same period last year.

SBI Card

SBI Card shares Market Response:

By 9:30 a.m., SBI Card shares were trading at Rs 719 on the National Stock Exchange, a huge 5.4 percent decline from the previous closing. The stock is now more than 22% below its 52-week high of Rs 933.

Brokerages report a bleak outlook :

Brokerage firms have painted a bleak outlook for the stock’s future. Morgan Stanley downgraded SBI Card to “equal weight” and lowered its target price from Rs 950 to Rs 750. The firm noted higher-than-expected net slippages in the December quarter and forecasted two more quarters of high credit expenses, which have harmed investor sentiment.

Rising Credit Costs :

SBI Card’s net credit costs for the third quarter totaled Rs 764 crore, up 25% sequentially and 91 percent year on year. The lack of clarity on credit cost normalisation has raised investor concerns, leading to potential limits and de-ratings of the P/E multiple until doubts are resolved.

Profit Concerns :

InCRED also issued a “reduce” recommendation with a target price of Rs 500 per share. Despite maintaining stable margins, SBI Cards posted lower-than-expected profits. The company’s profit rose 7.8 percent year on year to Rs 549 crore in the December quarter, falling shy of Bloomberg’s expectation of Rs 600 crore.

Regulatory hurdles :

The Reserve Bank of India’s (RBI) recent policy initiatives are predicted to exacerbate SBI Card’s troubles. The central bank’s advice against unsecured lending, combined with its risk-weightage rise for consumer credit, may result in margin pressure and higher credit costs in the coming quarter. These regulatory hurdles, combined with sluggish growth and falling profitability, might diminish SBI Cards’ premium valuation.

Downgrades and Revised Targets :

Motilal Oswal Financial Services, a local broking firm, stated that SBI Card’s credit cost projection was initially set at 6% for Q1 FY24, but has since increased to 7.5 percent. This follows the RBI’s warnings about rising delinquencies in unsecured retail credit. As a result, the brokerage lowered the stock’s rating to “neutral” and revised the target price to Rs 850.

Summary :

In summary, SBI Cards had a difficult quarter marked by increased provisions and reduced margins due to a large increase in financing expenses. With regulatory concerns looming and brokerage firms revising their targets down, the path ahead for SBI Card stockholders appears rough.



Leave a comment