Neutral SBI Cards Ltd For Target Rs.800 by Motilal Oswal Financial Services Ltd
High provisioning drags earnings; credit cost peaks out
Guides for 12-15% growth in receivables
* SBI Cards (SBICARD) reported a miss on PAT (11% miss) at INR3.82b.
* NIMs stood stable at 10.6%. The share of the revolver mix improved marginally to 24%, although management does not expect the revolver mix to see any sustained improvement. EMI mix stood at 36% (vs 37% in 2Q, 38% in 1Q).
* Spends grew 5% QoQ (down 11% YoY) as retail spends continued to grow, while corporate spends remained muted. Management guides for slower receivable growth at 12-15% YoY for FY26.
* Asset quality stood stable with the GNPA/NNPA ratio decreasing 3bp/1bp QoQ to 3.24%/1.18%. RoA/ RoE stood at 2.4%/ 11.5%.
* We cut our FY25E/FY26E EPS by 6.7%/3.9%, factoring in slower growth and subdued margins. Reiterate Neutral with a revised TP of INR800 (23x Sep’26E EPS).
Margins remain flat; asset quality bottoms out
* SBICARD reported an 11% miss on PAT at INR3.82b (down 5% QoQ) as elevated provisions hurt profitability. Gross credit cost came in higher at 9.4%. 9MFY25 PAT, thus, stood at INR13.8b (down 21% YoY), while 4QFY25 PAT is expected at INR5.8b (down 12% YoY).
* NII grew 13.2% YoY/4.6% QoQ to INR15.7b (inline). NIMs stood stable at 10.6%. The upcoming rate will be supportive of NIMs and we, thus, estimate the NIM trajectory to improve over FY26-27. The revolver mix improved to 24%, while the share of the EMI mix declined to 36%, and that of the transactor stood stable at 40%.
* CoF stood stable at 7.4%, but is expected to ease as the interest rate reversal cycle begins.
* Fee income as a proportion of total income stood stable at 51%. PPoP grew 13% YoY/4.2% QoQ to INR18.3b (in line). The C/I ratio stood broadly stable at 53.5% vs 53.4% in 2QFY25.
* Cards-in-force rose 10% YoY/3.1% QoQ to 20.2m. New card sourcing picked up in 3Q to 1.17m, with SBI sourcing rising to 55% vs 38% in 2Q, while on an outstanding basis, the SBI sourcing mix stood at 41%.
* Spends grew 5.1% QoQ (down 11% YoY), led by healthy growth in retail spends (up 9.9% YoY/ 5.8% QoQ), while corporate spends continued to be muted (down 77% YoY, 3.5% QoQ).
* GNPA/NNPA ratios decreased 3bp/1bp QoQ to 3.24%/1.18%. PCR was broadly stable QoQ at 64.4%, as credit cost rose 40bp QoQ to 9.4%. Provisioning expenses, thus, increased 49% YoY to INR13b.
Highlights from the management commentary
* The management indicated that credit cost has peaked, and the asset quality stress is likely to ease moving forward.
* The company is not taking proactive measures to increase the revolver mix share; it has remained stable at 24% and is expected to stay within this range or slightly lower.
* Receivables are expected to grow at ~12-15% next year. C/I ratio of ~52% is expected for the year
Valuation and view: Reiterate Neutral with a revised TP of INR800
SBICARD reported another weak quarter, led by an earnings miss and elevated provisions. The revolver mix improved while the EMI mix moderated marginally. Management guides for no pickup in the revolver mix, but it has revamped the strategy towards the EMI conversion. Spends grew 5% QoQ, led by retail spends, while corporate spends stood muted. NIMs stood flat; however, the cost of funds is expected to provide some relief as the rate-cut cycle begins. Credit cost further inched up to 9.4%, with the trajectory likely to continue in 4Q. We cut our FY25E/FY26E EPS by 6.7%/3.9%, factoring in slower growth and subdued margins. Reiterate Neutral with a revised TP of INR800 (23x Sep’26E EPS).
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
