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Should investors buy, sell or hold SBI Cards after Q3 results?

Should investors buy, sell or hold SBI Cards after Q3 results?

Should investors buy, sell or hold SBI Cards after Q3 results?
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By Yashi Gupta  Jan 25, 2022 2:03:26 PM IST (Updated)

The share price of SBI Cards rose as much as 1.5 percent on Tuesday following the company's third-quarter earnings. The company clocked a 24 percent year-on-year surge in its revenue, “primarily due to higher income from fees and services in Q3 FY22,” it said in a regulatory filing.

SBI Cards share price surged over 1.5 percent to an intraday high of Rs 826 Tuesday. The upmove follows the company's third-quarter earnings that showed profit after tax (PAT) rising over 85 percent year-on-year to Rs 386 crore.

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The company has clocked a 24 percent year-on-year surge in its revenue, “primarily due to higher income from fees and services in Q3 FY22,” it said in a regulatory filing. Its revenue surged to Rs 3,140 crore.
The asset quality of the credit card issuer, promoted by the State Bank of India (SBI), has improved as gross non-performing assets fell to 2.4 percent of gross profit.
Its return on average assets (ROAA) rose to 5 percent during the quarter under consideration, as compared to 3.3 percent in the same period last year. ROAA allows analysts to assess the profitability of a company's assets.
Credit Suisse has cut the target price on SBI Card from Rs 1,350 to Rs 1,100 given slower net interest margin (NIM) recovery. It has cut the earnings per share estimates by 14, 8, and 6 percent for FY22, FY23, and FY24, respectively. While it posted strong growth in spending, the brokerage said, the share of revolvers remains low.
A revolver is a borrower who carries a balance from month to month using a revolving credit line. SBI Cards’ revolvers were 27 percent for the third quarter, same as the previous quarter, but down from the first quarter when it came in at 29 percent.
Plus, overhang remains from potential RBI regulations on credit card merchant discount rate (MDR). The RBI has in its discussion papers talked about revisiting various charges across digital payment modes such as debit and credit cards.
Morgan Stanley has an 'overweight' call on the stock with a target price of Rs 1,300, adding that it sees "downside risks to our forecasts." The brokerage noted that adjusted profit before tax is 22 percent below estimates owing to higher provisions and expenses, but there is an improvement across metrics.
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