In a significant development for the credit card industry, SBI Cards and Payment Services, India’s second-largest pure-play credit card issuer, faces mounting challenges. Consequently, several prominent brokerages have downgraded their outlook on the company.
As a subsidiary of State Bank of India, SBI Cards operates in the financial services sector, specifically focusing on credit card issuance and payment solutions. Moreover, the company serves as a crucial player in India’s growing digital payments landscape. Furthermore, the recent market response has been notably negative. Specifically, the stock witnessed a sharp decline of 3% on October 30, reaching Rs 664 per share.
Financial Performance Raises Red Flags
Initially, the company’s second-quarter results for FY25 revealed concerning trends. Subsequently, the net profit experienced a substantial 33% year-on-year decline, settling at Rs 404 crore.
Meanwhile, the revenue metrics painted a mixed picture. Although total revenue grew by 8.2% year-on-year, this growth primarily stemmed from interest income.
Additionally, the company’s market position showed signs of erosion. Notably, the card-in-force share decreased from 19.2% to 18.5%, indicating increased competitive pressures. Furthermore, asset quality metrics triggered alarm bells among investors. In particular, Gross Non-Performing Assets rose significantly to 3.27% from 2.43%.
Broker Outlook and Future Trajectory
Following these developments, major brokerages have taken decisive action. Specifically, HSBC downgraded the stock to ‘Reduce’ with a target price of Rs 580.
Similarly, Nomura expressed concerns about the company’s prospects. Therefore, they assigned a ‘Reduce’ rating with 6% downside and set a target price of Rs 625. Meanwhile, Jefferies maintained a more moderate stance. Nevertheless, they adjusted their FY25-27 earnings estimates downward by 4-8%.
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Future Oulook of SBI Cards
Looking ahead, industry experts anticipate continued challenges. Particularly, the competitive landscape in credit card services remains intense.
Moreover, regulatory changes could impact profitability. Therefore, the company needs to strengthen its market position through innovative solutions. Nevertheless, some positive factors remain. Specifically, the growing digital payments ecosystem in India offers expansion opportunities.
Additionally, SBI Cards strong parentage provides competitive advantages. However, the company must address operational inefficiencies to maintain market share.
The company’s financial outlook appears challenging for FY25. Specifically, high credit costs and increased operating expenses pose significant concerns. Moreover, the muted new card issuance trend suggests slower growth ahead. Therefore, investors should carefully evaluate their positions. Nevertheless, long-term industry fundamentals remain favorable. Particularly, India’s underserved credit market presents growth opportunities.
Moving forward, SBI Cards must focus on improving asset quality. Furthermore, strengthening risk management practices becomes crucial for sustainable growth. The company’s strategic initiatives will play a vital role. Particularly, expanding the customer base while maintaining credit quality remains crucial.
In conclusion, while near-term headwinds persist, long-term potential exists. Therefore, investors should align their expectations accordingly and consider expert advice.
Written By Fazal Ul Vahab C H
Disclaimer
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