The brokerage firm noted that it has shifted its focus to growth but expects FY2026 to see slower growth.
“SBICARD reported a 20% yoy decline in earnings as 7% yoy operating profit growth was offset by high provisions (LLP was at 9 %). Card issuance (10% yoy) has slowed while spends grew 11% yoy. The reduction in credit cost is visible and we expect this improving trend to accelerate and remain lower for longer. We shift focus to growth but expect FY2026 to see slower growth,” the brokerage firm said.
Kotak Equities, in its report said that it finds the stock discomforting. However, it sees payments having better growth opportunities and believes that SBI Cards has a relatively strong ecosystem to capture this opportunity. The tailwinds for the business look encouraging.
In Q4FY25, SBI Cards faced fewer challenges on asset quality, with credit costs improving to around 9% of loans. However, management remains cautious due to past uncertainties. While there is potential for positive surprises in credit cost trends, the current stock valuation limits further upside unless growth significantly accelerates.
Kotak Equities outlined three hurdles for a re-rating: lack of significant growth in card issuances, a conservative risk approach, and limited cost-of-funds advantage.The brokerage firm expects near-term growth to underperform expectations and considers the case for a valuation re-rating less compelling. Their current projections do not include the kind of growth surge seen post-demonetization or during the Covid recovery phase, where lenders were more comfortable with their portfolio, resulting in faster card additions.(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
