SBI Cards tumbles below IPO price after Q2 results

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Shares of SBI Cards and Payment Services slipped below the IPO price on Monday for the first time in six months after the financial service provider reported weaker-than-expected quarterly numbers. The stock closed at ₹750.50, after dipping as low as ₹732.05, against the previous day’s close of ₹791.05, down 5.13 per cent.

Most analysts downgraded the stock and target price after the results due to cost pressure, elevated provisions, and a lack of triggers.

SBI Cards on Friday reported a 15 per cent year-on-year increase in net profit for the quarter ended September 30, 2023, at ₹603 crore as against ₹526 crore reported a year ago. Total income grew by 22 per cent to ₹4,221 crore (₹3,453 crore). Gross non-performing assets were at 2.43 per cent (2.14 per cent), and net non-performing assets stood at 0.89 per cent (0.78 per cent).

IPO in 2020

SBI Cards hit the capital market with a ₹10,355-crore IPO at an issue price of ₹755 in March 2020.

According to Yes Securities, while valuation is not demanding in the context of being a credit card pure-play, leading market share, and good franchise growth/RoE, it lacks triggers for re-rating. “Hence, we expect stock’s underperformance versus the sector to continue for a while and downgrade rating to Add from Buy,” it said, adding that factors that can re-rate valuation would be an uptick in spends’ market share, normalisation of credit costs, and softening of interest rates.

Shares of the revolver book remain low at 24 per cent which, coupled with a rising CoF, weighs on NIMs—down by 12 bps q-o-q to 11.3 per cent, said Emkay Global Financial. “Factoring in the operational softness in business/fees and higher LLP due to rising stress, we have lowered our FY24-26 earnings by 11–13 per cent and our RoA/RoE expectations to about 4.7-4.9/23 per cent. Based on our ERE model, we have revised down our TP to ₹865/share (from ₹950), implying 5.2x its Sep-25 ABV/25x EPS. We retain Hold on the stock,” it added.

Margin compression

Motilal Oswal Financial too, while retaining the buy rating on the stock, revised the target price to ₹900 from the earlier ₹970. SBI Cards reported a muted quarter characterised by elevated provisions and further compression in margins. The mix of revolvers and EMI loans remains stable, while management indicated that the recent hardening of interest rates will exert pressure on funding costs in the coming quarters. This could drive further margin compression over H2-FY24 as the outlook on any increase in the mix of EMI and revolver loans remains uncertain, the brokerage further said.