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Business growth tepid; credit cost improves further NIMs broadly stable QoQ

* SBI Cards (SBICARD) reported 2QFY27 PAT of INR7.8b (up 75% YoY/17% QoQ, 9% beat), led by lower-than-expected provisions.

* NIM contracted 1bp QoQ to 10.8% (vs 10.7% MOFSLe), while NII growth of 3% QoQ was in line with MOFSLe. SBICARD expects NIM to remain broadly stable despite upward pressure on borrowing costs from the recent repo rate hike.

* Credit cost further improved to 5.6% from 6.5% in 1QFY27. SBICARD has made an additional INR0.3b provision to address heightened macro uncertainty, taking the total management overlay to INR1b.

* Spends grew 3% YoY/declined 7% QoQ as corporate spends declined 12% YoY/declined 37% QoQ, while growth in retail spends rose 6% YoY/1% QoQ.

* Corporate spends stood at ~13.9% of total spends vs. 20.6% in 1QFY27.

* GNPA ratio improved 14bp QoQ to 1.9%, while NNPA ratio improved 6bp QoQ to 0.77%. ECL declined 10bp QoQ to 3.0%. PCR declined 8bp QoQ to 59.8%.

* We raise our FY27/28E earnings by 5-6% and estimate SBICARD to report FY28E RoA/RoE of 4.5%/18.4%. Reiterate Neutral with a revised TP of INR625 (16x FY28E EPS).

Highlights from the management commentary

* NIM is likely to remain broadly stable despite upward pressure on borrowing costs from the recent repo rate hike and the possibility of a further ~50bp increase.

* Management reiterated gross credit cost guidance of ~6% for FY27 and remains comfortable with credit costs in the 5.5–6.0% range, reflecting stabilization in the portfolio performance.

* The company created an additional provision of INR0.3b during the quarter to address heightened macroeconomic uncertainty, taking the total management overlay to INR1b.

* Corporate spends are expected to remain below 20% of overall spends, with management prioritizing profitability and margins over incremental corporate volumes

Valuation and view

SBICARD reported a healthy quarter, led by in line operating performance and lower provisioning. Lower provisions and an improving credit cost trajectory offset relatively muted receivables growth, which continues to be impacted by a higher share of transactors. Credit cost moderated to 5.6%, while the company created an additional provision of INR0.3b during the quarter to address heightened macroeconomic uncertainty, taking the total management overlay to INR1b. Management expects NIMs to remain broadly stable going forward, as the rise in cost of funds is likely to get offset by repo rate hike. Corporate spends have moderated, with management expecting the mix to remain below 20% of total spends. Asset quality metrics are expected to remain range bound as the management guides for credit cost to remain around 6%. We raise our earnings estimates by 5-6% and expect SBICARD to deliver FY28E RoA/RoE of 4.5%/18.4%. Reiterate Neutral with a revised TP of INR625 (16x FY28E EPS)

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