On Wednesday, JPMorgan revised its price target for SBI Cards and Payment Services (SBICARD:IN), reducing it to INR640.00 from the previous INR670.00, while maintaining an Underweight rating on the stock.
The adjustment follows the company's second-quarter performance, which reported a Profit After Tax (PAT) of Rs 4 billion, a figure that was consistent year-over-year but fell short of both JPMorgan's and the broader market's expectations.
The shortfall was attributed to a lower-than-expected Pre-Provision Operating Profit (PPOP) and an increase in credit costs, which climbed to 8% on a net basis.
The company indicated that although bounce rates are showing signs of improvement, suggesting a potential peak in credit costs, the roll-back rates from early-stage delinquencies remain low.
Additionally, the issue of borrowers being issued multiple credit lines persists. This situation implies that while credit costs may have peaked, they could continue to remain high in the near term.
Operationally, the company experienced a modest growth in overall spends, with a 3% year-over-year increase, driven by a 24% rise in retail spends which contributed to a 23% year-over-year growth in receivables.
Despite the positive momentum in retail spending, corporate spends have declined. The receivable mix has shifted towards transactors, particularly towards the end of September, coinciding with the start of the festive season. This shift is expected to revert to normal in the second half of the year.
This transition resulted in a 0.3 percentage point quarter-over-quarter decline in Net Interest Margin (NIM). The company also saw a quarter-over-quarter moderation in the cost of funds, benefiting from easing T-bill rates.
The report concluded by noting that the momentum in retail spending against the backdrop of elevated system-wide delinquencies is a point of focus. The potential for a system-wide increase in delinquencies poses a significant risk to the stock, according to JPMorgan's analysis.
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