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    Nomura raises SBI Cards target price, says asset quality drags behind now

    Nomura raises SBI Cards target price, says asset quality drags behind now

    Nomura raises SBI Cards target price, says asset quality drags behind now
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    By CNBCTV18.com  IST (Published)

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    Brokerage Nomura maintained a 'buy' call on SBI Cards & Payment Services.

    Nomura retained a 'buy' rating on SBI Card & Payment Services (SBI Cards) after the payment solutions provider's quarterly earnings fell 15 percent short of the brokerage's estimates. However, it raised the target price for SBI Cards shares to Rs 1,400.
    The new target price implies 45 times September 2023 earnings per share (EPS), Nomura said.

    SBI Cards, in the final minutes of Thursday's session, reported a net profit of Rs 344.9 crore for the quarter ended September, up 67.3 percent on a year-on-year basis. Revenue, however, declined 8.1 percent on year to Rs 1,173.2 crore.

    Nomura said the company's quarterly earnings were largely dented by a small miss on the pre-provision operating profit front and by higher provisions.
    "SBI Cards is in a transitory phase, where the operating jaw gets adversely impacted with costs scaling up ahead of the revenue scale-up, which will take a couple of quarters to come back," Nomura said.
    Here are highlights of what Nomura said:
    • Net interest income (NII) is weak with net interest margin (NIM) declining by 70 basis points QoQ, but partly offset by stronger fees
    • Spending ramped up sharply, acquisition engine firing now
    • Revolver book remains muted, exerting pressure on NIM
    • Asset quality issue drags behind
    • SBI Cards' return on equity of around 27 percent by FY23F and 23 percent in FY22F remains best in class, and visibility on growth higher given the sharp bounce-back in spending and origination, according to Nomura.

      SBI Cards' spending increased 31 percent on a year-on-year basis, aided by growth in both retail and corporate segments.

      Spending per card, at Rs 1,42,000 in Q2, is back to pre-COVID levels now, and the company's management has highlighted that apart from international spending, all other categories are back to pre-pandemic levels now, according to Nomura. 

      The sharp increase in salaries especially in sectors like IT and banking will further push up spending propensity, it added. 

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