SBI Cards falls over 5% on worries about weak asset quality

Mumbai: Shares of SBI Cards and Payments Services declined over 5% to ₹807 on Friday as investors grew more worried about its asset quality after its September quarter result.

While the stock is near its IPO price of ₹775 per share, brokerages expect the stock to bounce back after this temporary blip due to strong operating profits. The stock made its debut in March when the Covid-led selloff was at its peak in global markets and hit its lowest ever level of ₹495.25 on May 22. However, the stock has surged 63%

The company reported a sharp spike in bad loans during the quarter, with gross non-performing assets rising to 4.3% in the September quarter from 1.4% in the June quarter. Its net profit fell 46% to ₹206 crore in the September quarter. Despite the weak asset quality, leading brokerages such as Bernstein, Macquarie and Bank of America Securities have either maintained an outperform or buy rating.

Maintaining an outperform recommendation with a target price of ₹950, Macquarie said the asset quality was weaker than expected but it is not a time to be myopic on the stock and advised buying into the stock correction.

“Despite high provisions in a ‘stress-test’ year, operating profits are ample to cushion PAT. We see 20% return on equity even in FY21; and a return to 25%+ RoE FY22E onwards on ‘cleaned-up’ AUM base,” said Macquarie.

Bank of America Securities said it is retaining a positive view on SBI Cards on strong long term growth outlook, diversified revenue mix, comfortable capital and liquidity position. Bernstein only expects a temporary pressure on the stock. The management transparency was healthy and the operating profits cushion remained strong, said Bernstein.