Due to low asset quality, SBI Card downgrades, and brokerage lowers target price

Due to low asset quality, SBI Card downgrades, and brokerage lowers target price

Due to low asset quality, SBI Card downgrades, and brokerage lowers target price

For brokerage businesses, things are not looking good. SBI Card stock was reduced by Morgan Stanley to "equal weight" and was priced at Rs 750 instead of Rs 950.

The provisions and write-offs that the NBFC records in the profit and loss statement are referred to as credit costs. Net credit cost for SBI Cards in Q3 FY24 was Rs 764 crore, up 91% year over year and 25% sequentially.

On the morning of January 29, SBI Cards' shares dropped more than 5% as a result of brokerages' pessimistic outlooks and a decline in the asset quality of non-banking financial enterprises during the December quarter.

In the preceding quarter, SBI Cards as well as Payment Services Ltd.'s gross non-performing assets (NPAs) were 2.64 percent and 0.96 percent, respectively. These figures were higher than they were a year earlier.

The stock was down 5.4% that extends from the previous close as of 9.30 am on the National Stock Exchange, trading at Rs 719. The stock has dropped 22% from its Rs 933 52-week high.

Brokerage companies regard this stock with disappointment. SBI Card was downgraded to "equal weight" by Morgan Stanley, as well as the target price was lowered from Rs 950 to Rs 750.

Investor confidence is being eroded by the management's expectation that credit costs would increase in two more quarters, despite net slippages in the December quarter exceeding projections.

The provisions and write-offs that the NBFC made in the profit and loss statement are referred to as credit costs.

Net credit cost for SBI Cards was Rs 764 crore in the third quarter, increasing 91% year over year and 25% sequentially.

According to Morgan Stanley analysts, a possible range of P/E multiples and de-rating until concerns are cleared up are caused by the lack of certainty on the normalization of credit costs.

Additionally, InCRED has a "low" prediction with a Rs 500 share objective. SBI Cards had lower-than-expected earnings despite static margins.

Compared to Bloomberg projections of Rs 600 crore, the credit card issuer reported a 7.8% year-over-year increase in earnings at Rs 549 crore in the December quarter.

According to InCRED, the Reserve Bank of India's (RBI) unfavorable policy moves are anticipated to impede card issuance, putting pressure on margins and driving up credit costs in the next quarter. SBI Card premium value may decrease as a result of decreasing profitability and sluggish development.

The Reserve Bank of India issued a warning against unsecured loans in November and raised the risk-weighting of consumer loans.

According to domestic brokerage giant Motilal Oswal Financial Services, the RBI has warned of an increase in defaults in the unsecured retail sector, and as a result, the company has already exceeded its credit cost projection of 6% in Q1 FY24.

The stock was downgraded to "neutral" and the new target price was set at Rs 850.

"SBI Cards has reported a profitability quarter, characterized by higher provisions," said Motilal Oswal. The steep rise in finance costs is the reason for the continued weakness in the margin forecast.