JPMorgan wary of SBI card stock amid rising credit risks and sluggish spending growth By Investing.com
On Wednesday, JPMorgan revised its price target for SBI Cards and Payment Services (SBICARD:IN), down to INR640.00 from INR670.00 previously, while maintaining an Underweight rating on the stock.
The revision follows the company's second-quarter performance, which reported a Profit After Tax (PAT) of Rs 4 billion, which was unchanged year-on-year but fell short of both JPMorgan and the broader market's expectations.
The shortfall was due to a lower-than-expected Pre-Provision Operating Profit (PPOP) and an increase in borrowing costs, which rose to 8% on a net basis.
The company pointed out that although interest rates are showing signs of improvement, suggesting the possibility of higher debt costs, recovery rates from the original delinquency remain low.
Additionally, the issue of borrowers being denied multiple lines of credit continues. This situation means that although the cost of debt has increased significantly, it may continue to be high in the near term.
Operationally, the company experienced moderate growth in total revenue, with a 3% year-over-year increase, driven by a 24% increase in selling expenses that contributed to a 23% year-over-year increase in revenue.
Despite the positive momentum in retail spending, corporate spending has slowed. The earnings mix has shifted to traders, especially towards the end of September, which coincides with the start of the holiday season. This change is expected to return to normal in the second half of the year.
This change resulted in a 0.3 percent quarter over quarter decline in Net Interest Margin (NIM). The company also saw a quarter-over-quarter improvement in finance costs, benefiting from lower T-bill rates.
The report concludes by noting that the momentum in retail spending against a system-wide high crime background is a point of focus. The possibility of an increase in system-wide crime poses a major risk to stocks, according to an analysis by JPMorgan.
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