SBI Cards and Payment Services saw its stock slide by over 3%, settling at ₹664 per share on October 30. The drop followed disappointing Q2 results for FY25, which led several analysts to revise their forecasts. The lacklustre performance has raised concerns among investors, leading brokerage firms to reduce their target prices on the stock, signalling challenging months ahead.
For those looking to invest in stocks, understanding the underlying reasons behind such downgrades is essential to navigating this environment.
Lowered target prices signal a cautious outlook
Analysts revised their outlook on SBI Cards, predicting further declines, with some setting target prices that anticipate an additional 6% fall. They cited a combination of factors, including weak profitability and limited growth potential for the remainder of the fiscal year.
Analysts believe a potential policy rate cut could be a key factor to enhance profitability, as other growth drivers currently appear subdued. This is particularly relevant for those planning to invest in stocks, as understanding market dynamics can inform more strategic decisions.
Decline in new card issuance and earnings growth
One of the primary concerns raised in the reports is the reduced pace of new card issuance, coupled with a lower proportion of earnings assets, which has impacted SBI Cards’ overall profitability. Analysts noted the management's lack of guidance on when asset quality might stabilise, further muddying the outlook.
As the fiscal year progresses, those who invest in stocks might consider monitoring such indicators to assess the potential for long-term growth.
Increased operating costs and earnings pressure
SBI Cards faced rising operating expenses, leading analysts to cut earnings per share (EPS) estimates for the upcoming fiscal years. Despite an 8.2% year-over-year increase in total revenue, the firm’s operating costs offset much of this growth, with net profit dropping by 33% YoY to ₹404 crore.
Such financial headwinds are crucial for potential investors to assess when considering if this is a good time to invest in stocks like SBI Cards.
Market share loss and declining card usage
SBI Cards also lost market share in terms of both active cards and spending. Its market share in cards-in-force dropped to 18.5% from last year’s 19.2%, and its spending share fell to 15.7% from 18%.
These shifts indicate challenges in maintaining customer loyalty and usage rates. For those looking to invest in stocks, keeping track of market share metrics is important to gauge competitive positioning within the sector.
Asset quality concerns
The report revealed deteriorating asset quality, with gross non-performing assets (GNPA) rising to 3.27% from 2.43% a year ago, while net non-performing assets (NNPA) also increased to 1.19%.
These trends raise questions about credit risk and the stability of the company’s loan portfolio. For individuals seeking to invest in stocks, understanding how asset quality impacts financial health is essential for making informed decisions.
Should investors buy SBI Cards stock?
Given these findings, some analysts have downgraded the stock to a "hold" or "reduce" recommendation. Potential investors may want to weigh the stock's future prospects carefully, especially amid signals of continued earnings pressure and asset quality concerns.
Those planning to invest in stocks in the financial sector might consider observing SBI Cards' performance in upcoming quarters to determine whether conditions improve or if more conservative options may be better suited for their portfolio.
For android only