SBI Cards Q2 Results Review - Asset Quality Pain Continues; Margins Contract Further: Motilal Oswal

Motilal Oswal Report

SBI Cards and Payment Services Ltd. reported another weak quarter, characterized by an earnings miss and high asset quality stress alongside a further contraction in margins. Opex too stood elevated amid the festive season related adjustment; however, the higher credit cost continues to dent earnings.

Spending growth was modest while corporate spends witnessed a mild uptick in Q2, expecting the momentum to continue in Q3 and Q4. The mix of revolvers declined slightly while the management focused on expanding the EMI mix.

The margin witnessed a hit due to the festive season; however, the cost of funds is expected to provide some relief as the rate cuts begin. Credit cost further inched up to 9.0% with the management guiding an elevated credit cost for FY25.

The reversal in the rate cycle and improvement in the revolver mix are the key triggers, though they appear to be a few quarters away. We further cut our FY25E/FY26E earnings per share by 22.1%/19.1%, factoring in an elevated credit cost and subdued margins. Reiterate Neutral with a target price of Rs 750 (22 times Sep-26E EPS).

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