SBI Cards and Payment Services plummeted more than 3% to Rs 897.00 after Goldman Sachs initiated coverage on the stock with a ‘Sell’ rating and a Rs 654 price target, according to CNBCTV18.

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At 12:00 pm, shares of SBI Cards were down 2.48% at Rs 904.00 on NSE. SBI Cards stock is trading lower than 5, 20, 50, 100 and 200-day moving averages which indicated the bearish momentum in the shares. In the past three months, the share price has declined by 20%.

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The target price of Rs 654 is around a 28% drop from the current market price. According to media sources, Goldman Sachs is among the first institutional brokers to issue a ‘Sell’ call on the stock, believing that the company’s rich valuations have rendered the risk-reward ratio unfavourable.

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While the brokerage noted that SBI Cards handled the COVID-19 crisis properly, it stated that the credit card firm has various challenges in the future.

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SBI Cards will face three hurdles in the future, according to the brokerage firm:

  • The increasing popularity of alternates like Buy-Now-Pay-Later
  • Regulatory changes such as a challenge to MDR/interchange rate which could potentially impact fees (c.50% of revenues)
  • Competition from capital-rich fintech & banks

On a consolidated basis, SBI Cards and Payment Services’ net profit surged 67.31% to Rs 344.90 crore on a 7.39% increase in total income to Rs 2,695.46 crore in Q2 FY22 over Q2 FY21.

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The company’s finance cost fell by 4% in the reported quarter to Rs 254 crore from Rs 264 crore. However, total operating costs went up by 25% to Rs 1,383 crore. Impairment losses and bad debts expenses stood at Rs 594 crore, down from Rs 862 crore in the year-ago period. New accounts volume at 9,53,000 for Q2 FY22 rose 39 per cent as compared to 6,88,000 earlier.