This analyst expects SBI Cards shares to fall 18% on pressured profit, falling market share

Shares of SBI Cards and Payment Services Ltd. are trading with losses on Monday after brokerage firm Nomura downgraded the stock to reduce. The firm has also cut its price target on the stock to Rs 700 from Rs 1,030 earlier. The revised price target implies a potential downside of 18 percent from current levels.

Nomura's price target of Rs 700 is below the company's IPO price of Rs 755. A key reason behind the downgrade, according to Nomura, is that it expects SBI Cards' profitability to remain under pressure going forward.

The brokerage noted further that growth of the credit card industry is moderating and that SBI Cards continues to lose market share. For the month of May, SBI Cards' spends market share fell to 16.91 percent, from 18.65 percent last year and 18.28 percent in the month of April. Total spends also declined by 2 percent on a month-on-month basis.

“Industry landscape is changing with an increase in riskier consumer segments,” Nomura stated, adding further that the benefits of a policy rate pause, or a potential cut on the cost of funds is likely to accrue only in financial year 2025.

Additionally, Nomura called SBI Cards' current valuations of 5.4 times financial year 2025 book value per share as stretched and that it leaves no margin for error.

However, analysts at another brokerage Morgan Stanley last week assigned an overweight rating on SBI Cards, saying industry spending growth was up 24 percent on year in May.

It also noted that the company rose slower and its market share dipped sequentially. However, the decline in market share could be due to lesser focus on corporate spending, it added.

Out of the 28 analysts that track SBI Cards, 21 have a buy recommendation, three say hold, while four have a sell rating. Nomura's price target of Rs 700 is the second-lowest for SBI Card on the street, after Goldman Sachs' Rs 652.

Shares of SBI Card are trading 2 percent lower at Rs 840.55. The stock is up 5.7 percent on a year-to-date basis but have declined 18 percent from their 52-week high of Rs 1,028.