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SBI Cards (SBIC) reported in-line, albeit relatively moderate, PAT at Rs6bn/ROA at 4.9%, as asset quality continues to hurt, leading to elevated write-offs. Company indicates that it is keeping close track of its portfolio, while taking corrective measures to limit incremental stress. SBIC lost some market share in CIF/spends at 19.2%/17.9% in 1H from 19.7%/18.2% as of FY23, possibly due to devaluation of the high-selling cashback card. Gross receivables growth too was modest, at 20% YoY, due to moderation in spends as well as some base effect due to the festive season occurring in 2Q last year. Share of the revolver book remains low at 24% which, coupled with rising CoF, weighed on NIMs—down by 12bps QoQ to 11.3%. Factoring-in the operational softness in business/fees and higher LLP due to rising stress, we have lowered our FY24- 26E earnings by 11-13% and our RoA/RoE expectations to ~4.7-4.9%/23%. Based on our ERE model, we have revised down our TP to Rs865/share (from Rs950), implying 5.2x its Sep-25 ABV/25x EPS. We retain HOLD on the stock

Market-share loss accelerates; margin, too, slips QoQ, amid rising CoF

New card addition moderated to 1.1mn vs 1.2mn last year, partly due to the base effect as well as devaluation of the cash-back card from May-23, the impact of which is now visible, as expected. Further, card drop rate has accelerated to 51% of new card adds vs mid-40s range earlier. CIF growth is 21% YoY to 17.9mn, while growth in spends is 25.5% YoY. But SBIC lost QoQ mkt -share in CIF/spends to 19.2%/17.9% from the 19.7%/18.2% peak in Mar-23, owing to its own slower growth along with aggressive growth by some peers, incl. HDFCB, Axis Bank and Kotak Mahindra Bank. Receivables growth was even lower, at 19% YoY/4% QoQ, given the subdued 24% revolver share and base effect, as last year the festive season mainly occurred in 2Q. Also, NIM slipped yet again, by 20bps to 11.3%, on rising CoF. Going forward, the management expects business growth to pick-up, as also the margins, as pace of the CoF rise moderates.

Stress comes back to haunt the card industry, as also SBIC

Stage-3 assets continued to rise, by 6bps QoQ to 2.4%, due to stress in the old 2019 pool earlier being camouflaged by the Covid-19 stress. SBIC identified the stress pool some time ago and has already initiated action. Thus, SBIC expects asset fall-out and hence the provisions/charge-offs are likely to be limited in H2. But we conservatively build-in a higher LLP/charge-off rate over FY24-26E, factoring-in the rising macro disruptions and the expected rise in revolver rate, typically prone to asset-quality risk.

We retain HOLD, but lower our TP to Rs865/share

Factoring-in the operational softness in business/fees and the higher LLP due to rising stress, we have lowered our FY24-26E earnings by 11-13% and RoA/RoE expectations to 4.7-4.9%/23%. Based on our ERE model, we have revised down our TP to Rs865/share (from Rs950), implying 5.2x its Sep-25 ABV/25x EPS. We retain HOLD. SBIC has also hired a new MD and CEO, Abhijit Chakravorty, to replace Rama Mohan Rao, who is moving to parent SBI. Key downside risks to our TP: Slower-than-expected growth in spends/market-share, prolonged funding cost pressures, KMP attrition, rising asset-quality stress and industry-wide regulatory cut in MDR/ICF.

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