SBI Cards’ Q1 Results: A Turning Point in the Credit Cycle?
SBI Cards and Payment Services Ltd., one of India’s leading credit card issuers, has been facing challenges in its credit cycle. The company’s recent Q1 results have led to a ‘reduce’ rating from Yes Securities, citing concerns over the company’s credit cycle.
In this blog post, we’ll delve deeper into the key factors that have led to this rating and what it means for investors.
Inflection Point in the Credit Cycle
SBI Cards is at an inflection point in its credit cycle, with the company’s delinquency flows and write-offs expected to decline. However, this reduction in delinquency flows and write-offs is crucial in sustaining the company’s current valuation multiples of 25x P/E and 4.6x P/BV on FY27 estimates.
The rate cycle benefit on net interest margin has been largely priced in, and therefore, a significant improvement in card acquisitions and credit cost would be incremental triggers for the company when they emerge.
Key Factors Behind the ‘Reduce’ Rating
The ‘reduce’ rating from Yes Securities is based on several key factors, including:
- The company’s credit cycle, which is expected to be at an inflection point.
- The need for a significant improvement in card acquisitions and credit cost.
- The company’s valuation multiples, which are currently at 25x P/E and 4.6x P/BV on FY27 estimates.
In addition, the rating agency has preferred Bajaj Finance over SBI Cards, citing the former’s stronger growth and return on equity (RoE) performance.
Investment Opportunity?
Despite the ‘reduce’ rating, SBI Cards’ Q1 results provide an investment opportunity for those who believe in the company’s turnaround plan. The company’s focus on reducing delinquency flows and write-offs, improving card acquisitions, and controlling credit costs could lead to a recovery in its credit cycle.
However, investors should be cautious and do their own due diligence before making any investment decisions.
Conclusion
In conclusion, SBI Cards’ Q1 results have led to a ‘reduce’ rating from Yes Securities, citing concerns over the company’s credit cycle. While the rating agency’s concerns are valid, the company’s Q1 results provide an investment opportunity for those who believe in its turnaround plan. Investors should be cautious and do their own due diligence before making any investment decisions.
