SBI Card, the credit arm of the State Bank of India (SBI), has reported a decline in net profit for the first quarter of the fiscal year. The company’s net profit fell by 5% to ₹593 crore ($80 million), compared to ₹623 crore ($84 million) in the same period last year. This decrease in profit has led some brokerage firms to lower their estimates for SBI Card, resulting in rating downgrades and cuts in target prices.
Despite the decline in net profit, SBI Card saw a 24% increase in revenue from operations, which rose to ₹4,046 crore ($546 million) in the first quarter, up from ₹3,263 crore ($441 million) in the year-ago period. Interest income also saw a significant increase of 30% at ₹1,804 crore ($244 million), compared to ₹1,387 crore ($187 million) in the first quarter of the previous fiscal year.
However, SBI Card’s net interest margins have taken a hit, standing at 11.5%, down 176 basis points. Fees and commission income, on the other hand, increased by 23% to ₹1,898 crore ($257 million) in the first quarter of the current fiscal year, compared to ₹1,538 crore ($208 million) in the same period last year.
Following the release of SBI Card’s Q1 earnings, brokerage firms have expressed diverse views on the company’s stock. One firm, Emkay Global Financial Services, downgraded the stock to a ‘hold’ from a ‘buy’ rating and lowered the target price to ₹950 ($13) from ₹1,000 ($14). Emkay cited operational softness in business, fees, and non-performing assets as the reason for lowering its earnings estimates for FY24-26E.
Nuvama Wealth Management also downgraded SBI Card’s stock to ‘reduce’ from ‘hold’ and lowered the target price to ₹775 ($10) from ₹835 ($11). The firm expressed concerns over high credit costs and the vintage of bad loans, emphasizing risk management as a key valuation driver for unsecured loans.
Another brokerage firm, Kotak, maintained a positive outlook on SBI Card, stating that despite unexpected surprises, the company’s strong market share and solid business model make it an attractive investment. Meanwhile, Motilal Oswal Financial Services continued to maintain a ‘buy’ call on the stock, expecting credit costs to improve in the upcoming quarters and projecting a 28% earnings compound annual growth rate over FY23-25.
Overall, SBI Card’s Q1 results have led to mixed reactions from brokerage firms. While some have downgraded the stock due to concerns over earnings and credit costs, others believe in the company’s long-term potential and are optimistic about its growth prospects. Investors will be closely watching SBI Card’s performance in the coming quarters to assess its ability to overcome current challenges and deliver sustained profitability.
