Neutral SBI Cards; target of Rs 625: Motilal Oswal

What happened

Motilal Oswal reported SBI Cards' second-quarter profit of INR7.8b, up 75% from a year earlier and 17% from the prior quarter, beating estimates by 9% on lower provisions. Net interest margin, the gap between interest earned and paid, fell slightly to 10.8%.

Confirmed

Global impact / market context

Lower provisions, which is money set aside for expected bad loans, drove the profit beat rather than core interest income growth. Because the broker expects profit per sale and returns to improve, it raised earnings forecasts and lifted its target price to INR625 while keeping a Neutral view.

Analyst inference

SBI Cards expects its net interest margin to stay broadly stable even though borrowed money costs more after a recent repo rate hike, which is India's central bank benchmark rate. That pressure matters for a lender whose earnings depend on the spread between what it charges customers and pays for funds.

Analyst inference

What to watch

1. Watch whether net interest margin holds near 10.8%, since the company expects it to remain broadly stable despite upward pressure on borrowing costs after the recent repo rate hike. Confirmed
2. Motilal Oswal's raised earnings estimates imply a forecast for FY28E return on assets and return on equity of 4.5% and 18.4%, so track whether reported results move toward those levels. Proposed
3. Track provisions in coming quarters, because the profit beat came from lower bad-loan set-asides; if those costs normalize, profit growth could slow even if interest income stays steady. Analyst inference

Evidence

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