SBI Card share price plunges over 5% as Q3 result misses estimates; should you buy, sell or hold the stock?

livemint.com:

₹715.05 apiece on the BSE. SBI Cards and Payment Services Ltd, the State Bank of India-backed credit card services provider reported an 8% growth in its net profit to ₹549 crore in the third quarter of FY24, from ₹509 crore in the same period a year ago. The company’s total income in Q3FY24 rose 30% year-on-year (YoY) to ₹4,742 crore from ₹3,656 crore in Q3 of last fiscal year.

SBI Card’s net profit in Q3 missed consensus by 7% on a sharp rise in credit cost and higher-than-expected opex. Credit cost rose sharply to 7.5% from an already elevated 6.7% QoQ. Net interest margin (NIM) on monthly average balance fell 30 bps QoQ with a rise in cost of funds.

Read here: SBI Card Q3 results: Net profit rises 8% to ₹549 crore “The company’s CEO attributed higher credit cost to a sharp 16% QoQ rise in delinquencies in the sector in the 30DPD and 90DPD buckets. With credit cost likely to remain high and a likely increase in CoF, the outlook remains weak," Nuvama Institutional Equities noted. Management guided that the increase in credit cost was not one-off and elevated credit cost could persist for the next few quarters.

“In response to higher risk weights on NBFC, banks have increased their lending rates for SBI Cards by ~30 bps, full impact of which will be seen in Q4FY24. As such, NIM could decline QoQ. With high CoF, elevated credit cost and quarterly addition of new accounts stagnating at 1.1 mn, the outlook remains weak.

In addition, capital adequacy for the company has fallen sharply. High delinquencies for the sector are likely to persist till RBI action on risk weights slows growth and forces lenders to weed out defaulters," Nuvama said. It cut earnings estimates sharply by 12% for FY24 and 13% for FY25E.