Neutral SBI Cards Ltd for the Target Rs 700 by Motilal Oswal Financial Services Ltd
Business growth tepid; credit cost glides down further NIMs decline 30bp QoQ
* SBI Cards (SBICARD) reported 1QFY27 PAT of INR6.64b (up 19.5% YoY/9% QoQ, in line with MOFSLe), as lower fee was offset by lower provisions.
* NIMs declined 30bp QoQ to 10.8% amid a decline in yields and an increase in CoF. SBICARD maintains its NIM guidance and expects NIMs to remain stable going ahead.
* Opex grew by 23.4% YoY/2.3% QoQ to INR26.2b, driven by the implementation of the new wage code.
* Credit cost further improved to 6.5% from 7.7% in 4QFY26. SBICARD has utilized a management overlay of INR1.8b out of INR2.2b. It expects credit cost to improve further as first delinquency buckets are at a decadal low.
* Spends growth was healthy at 27% YoY/3% QoQ, led by strong growth in retail spends (up 14% YoY/5% QoQ). Corporate spends declined 4% QoQ (up 125% YoY). Corporate spends stood at ~20.6% of total spends in 1QFY27 vs. 22.2% in FY26.
* GNPA ratio improved by 37bp QoQ to 2.04%, while NNPA ratio declined by 21bp QoQ to 0.83%. ECL increased 10bp QoQ to 3.1%, while PCR improved 228bp QoQ to 59.9%.
* We largely maintain our earnings estimates and expect SBICARD to report RoA/RoE of 4.4%/18.0% by FY28E. Reiterate Neutral with a revised TP of INR700 (18x FY28E EPS).
Revolver mix remains low at 22%; credit cost to remain under control
* 1Q PAT grew 20% YoY/9% QoQ to INR6.6b (in line), aided by low provisions.
* NII was flat YoY/QoQ at INR16.8b (in line). NIMs declined 30bp QoQ to 10.8% due to a 20bp QoQ decline in yields and a 10bp QoQ rise in CoF. Management expects NIMs to remain broadly stable, supported by portfolio actions, higher EMI share balances and yield optimization initiatives.
* Transactor mix declined to 45% (vs. 46% in 4QFY26), while revolver mix was largely flat at 22%. EMI mix inched up to 33% (vs. 32% in 4QFY26).
* Other income declined 35% QoQ (up 4% YoY; 23% miss on MOFSLe). C/I ratio thus increased to 58.7% (vs. 57.2% in 4QFY26 and 50.3% in 1QFY26).
* Total number of cards in force (CIF) grew by 6.6% YoY/2.3% QoQ to 22.6m. New card sourcing remained in a guided range of 1m QoQ. Around 53% of sourcing came from the open market.
* Spends grew decently by 27% YoY/2.7% QoQ, led by healthy growth in retail spends (up 14% YoY/4.7% QoQ), while corporate spends declined by 4.4% QoQ. Receivables grew 2.4% QoQ to INR582.7b due to a high transactor mix and lower revolve balances.
* GNPA ratio improved 37bp QoQ to 2.04%, while NNPA ratio declined 21bp QoQ to 0.83%. ECL increased modestly by 10bp QoQ to 3.1%, while PCR improved 228bp QoQ to 59.9%
Valuation and view
SBICARD reported a largely in-line, albeit slightly soft, performance in 1QFY27. Lower provisions and an improving credit cost trajectory offset relatively muted receivables growth, which was impacted by a higher share of transactors. Credit cost moderated to 6.5%, while the company utilized INR1.8b of the INR2.2b management overlay created in 4QFY26 following the annual ECL model refresh. Management expects NIMs to remain broadly stable going forward, although any near-term policy actions could result in some increase in the cost of funds and will remain a key monitorable. Corporate spends have moderated, with management expecting the mix to stabilize at around 20% of total spends. Asset quality is expected to improve further, supported by lower forward delinquencies and a favorable macroeconomic environment. We largely maintain our earnings estimates and expect SBICARD to report RoA/RoE of 4.4%/18.0% by FY28E. Reiterate Neutral with a revised TP of INR700 (18x FY28E EPS).
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