Neutral SBI Cards Ltd for the Target Rs. 1000 by Motilal Oswal Financial Services Ltd
NII in line; higher opex leads to earnings miss
NIMs remain flat QoQ; credit cost moderates
* SBI Cards (SBICARD) reported 2QFY26 PAT of INR4.5b (up 10% YoY/down 20% QoQ, MOFSLe: INR6b), affected by higher opex owing to festive offers and corporate pass-backs.
* Transactor mix increased to 44% from 40% in 1Q (due to festive-related spends), while revolver mix declined to 22% (vs. 24% in 1Q) and EMI mix declined to 34% (vs. 36% in 2Q). The company expects to sustain NIMs at the current levels.
* Spends grew by a healthy 31% YoY/15% QoQ, led by a robust revival in corporate spends (up 218% YoY/61% QoQ). Retail spends rose 17% YoY/9% QoQ. It expects to sustain receivable spending growth at 10-12%.
* GNPA ratio improved by 22bp QoQ to 2.85%, while NNPA ratio improved by 13bp QoQ to 1.29%. ECL declined by 17bp QoQ to 3.3%, while PCR rose 108bp QoQ to 55.4%.
* We reduce our earnings estimates by 12%/11% for FY26/FY27, considering an increase in opex and tepid margins. We expect SBICARD to post RoA/RoE of 4.1%/19.3% by FY27E. Reiterate Neutral with a TP of INR1,000 (25x Sep’27E EPS).
Healthy spends momentum backed by corporate recovery
* 2Q PAT was down 20% QoQ/up 10% YoY at INR4.5b (26% miss to MOFSLe), affected by higher opex owing to festive spends and corporate pass-backs.
* NII grew 15% YoY/3% QoQ to INR17.3b (in line). NIMs stood flat QoQ at 11.2%. NIMs are expected to hold up, led by stable yields and low CoF.
* Transactor mix increased to 44% (owing to higher transactor volume at the end of the quarter). Revolver mix declined to 22% (management expects revolver mix to improve after the festive season). EMI mix declined to 34%.
* Fee income as a proportion of total income was stable at 52%. Opex increased by 24% YoY/17% QoQ. C/I ratio, thus, increased to 56.8% from 50.3% in 1QFY26.
* Cards-in-force grew 10% YoY/1.4% QoQ to 21.5m. New card sourcing improved by 4% YoY/7% QoQ to 0.94m. About 50% of new card sourcing comes from banca, while open market comprised 50% vs. 44% in 1QFY26.
* Spends grew strongly by 31% YoY/15% QoQ, led by a surge in corporate spends (up 218% YoY/61% QoQ), while retail spends grew steadily by 17% YoY/7% QOQ. SBICARD expects strong momentum in the corporate spends category as the margin profile improves in the segment.
* GNPA ratio declined by 22bp QoQ to 2.85%, while NNPA ratio declined by 13bp QoQ to 1.29%. ECL declined to 3.3% from 3.5% in 1QFY26. PCR ratio increased by 108bp QoQ to 55.4% (up 108bp QoQ).
Highlights from the management commentary
* For FY26, C/I ratio is expected in the ~54-56% range. Due to higher corporate spends, this will be now at a higher side of the range.
* The company continues to expect 10-12% YoY growth in receivables in the upcoming quarters.
* The bank is expecting a decline in write-offs and gross credit costs going forward. Credit cost is expected to be below 9%.
* SBICARD will sustain the current NIMs going forward. Yields declined drastically in 2Q but should bounce back in 3Q.
Valuation and view
SBICARD delivered a mixed performance in 2Q, with higher opex partly offset by healthy spend momentum owing to festive trends. Provisions were in line with expectations and are likely to improve as macro conditions ease. The revolver mix moderated due to higher transactor activity during the festive season but is expected to recover as some users transition to revolvers, EMIs, or settlements. Spending growth should remain steady, supported by robust retail activity and a pickup in corporate spends. Receivables are projected to rise 10-12% YoY. Asset quality is expected to improve with lower forward flows and a supportive macro backdrop. NIMs are guided to remain stable, aided by some pending CoF benefits, while yields are likely to stay steady. We reduce our earnings estimates by 12%/11% for FY26/FY27, considering an increase in opex and tepid margins. We expect SBICARD to post RoA/RoE of 4.1%/19.3% by FY27E. Reiterate Neutral with a TP of INR1,000 (25x Sep’27E EPS).
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