Shares of SBI Cards and Payment Services, a subsidiary of State Bank of India (SBI), plunged nearly 7% in early deals on Friday after the credit card company reported lower-than-expected earnings for the second quarter ended September 2022. The payment solutions provider posted a decline in its net profit and margins on a sequential basis, however, it rose on a year-on-year basis due to low base effect.

Reacting to Q2 results, SBI Cards share price opened 2.2% lower at ₹839, against the previous closing price of ₹857.6 on the Bombay Stock Exchange (BSE). In the first hour of trade so far, the largecap stock declined as much as 6.7% to hit a low of ₹800, while market capitalisation dropped to ₹76,962.3 crore. The counter witnessed strong volume trade as 2.83 lakh shares changed hands on the BSE, compared to the two-week average volume of 0.71 lakh stocks. In contrast, the BSE Sensex was quoting at 60,112, up 356 points, at the time of reporting.

The share price of SBI Cards trades 26% lower than its 52-week high of ₹1,156.35 touched on October 28, 2021, while it touched a 52-week low of ₹656.10 on June 20, 2022. The share has fallen 12% on a year-to-date (YTD) basis, while it shed more than 3% in the past six months. In the last one month, the stock has dropped 9% and over 8% in a week.

For the July-September quarter of the current fiscal year (Q2 FY23), SBI Cards and Payment Services reported 52% YoY growth in net profit at ₹526 crore, compared with ₹345 crore in the same period last year. However, on a sequential basis, the profit dropped 16% from ₹627 crore in June quarter (Q1 FY23).

Revenue from operation rose 26% YoY to ₹1,484 crore during the quarter under review, while it climbed 7% quarter-on-quarter (QoQ) from ₹1,387 crore in Q1 FY23.  

Earnings before credit costs increased by 18% at ₹1,252 crore for Q2 FY23 versus ₹1,058 crore in the year-ago period. On the QoQ basis, it dropped 3% from ₹1,291 in Q1 FY23. The margins also declined 90 basis points sequentially to 12.3% due to a decline in the revolver mix and higher cost of funds.

On the asset quality front, the gross non-performing assets improved to 2.14% of gross advances as on September 30, 2022, as against 3.36% as on September 30, 2021. Net non-performing assets also declined to 0.78% as against 0.91% in the same period last year.

Post Q2 earnings, foreign brokerage CLSA has a “Sell” call on the stock with a target price of ₹795 per share, while Credit Suisse has given an “Outperform” call on SBI Cards, but it cut the target to ₹1,080 from ₹1,150. Morgan Stanley has an “Overweight” call on the stock with a target price of ₹1,100.

SBI Cards, which offers an extensive credit card portfolio to individual cardholders and corporate clients, has a wide base of over 14.8 million cards in force as of Q2 FY23. 

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