Poor earnings show in the September quarter (Q2FY24), with hints of likely weakness in asset quality going ahead, forced analysts to cut earnings estimates of SBI Cards and Payment Services (SBI Card).
On the bourses, shares of the State bank of India arm tumbled 7.4 per cent to Rs 732 apiece on the BSE in the intraday trade as investors factord in near-term concerns.
Analysts at Motilal Oswal Financial Services, for instance, slashed SBI Card earnings by 8 per cent and 10 per cent for FY24 and FY25, respectively, as they expect the company to face pesistent magin pressure.
"The mix of revolvers and equated monthly instalment (EMI) loans remains stable, while management indicated that the recent hardening of interest rates will exert pressure on funding costs in the coming quarters.
"This could drive further margin compression over H2FY24 as the outlook on any increase in the mix of EMI and Revolver loans remains uncertain.
"Moreover, the management indicated a slight rise in stress levels, which will likely keep credit costs elevated over the near term," the brokerage pointed out in its Q2FY24 results review report.
A revolver refers to a borrower—either an individual or a company—who carries a balance from month to month, via a revolving credit line.
The country's largest pure-play credir card issuer saw net interest margin (NIM) contraction of 12 basis points (bps) quarter-on-quarter (QoQ) to 11.3 per cent amid decreasing yield.
Besides, its gross non-performing assets (GNPA) ratio stood at 2.43 per cent as against 2.14 per cent in Q2FY23 and 2.41 per cent in Q1FY24.
Net non-performing assets (NNPA) ratio, meanwhile, rose to 0.89 per cent at the end of Q2FY24 as against 0.78 per cent in Q2FY23, and unchanged QoQ.
SBI Card's gross credit costs were elevated at 6.7 per cent versus 6.8 per cent QoQ, and remains much higher than the 6 per cent that management aspires to achieve. Its net credit costs were 5.5 per cent.
The management noted the rise in credit cost was in sync with reports about the rise in stress in small-ticket personal loans.
Gross write-offs shot up 9 per cent QoQ.
According to analysts, fresh rise in cohorts has emerged as a key concern in the near-term as, back in Q1FY24 when credit cost rose sharply by 70bp QoQ, the management had attributed it to a rise in delinquency from the customers acquired in 2019.
Thereafter, the company took portfolio actions, which led to good recoveries from this cohort.
Consequently, the share of this cohort to total interest-earning assets dipped to 14 per cent (from 16 per cent QoQ).
However, newer cohorts have started contributing to higher credit cost.
The explanation on credit costs outlook was unusual, as per analysts at Kotak Institutional Equities, given that management commentary moved from the FY19 cohort to concerns on recently originated cohorts without calling out for any specific period.
"The company had indicated last quarter that the recently originated cohorts were relatively better. However, comments like the ones seen in Q2 lead to higher uncertainty, resulting in lower multiples.
"We have already seen several headwinds through MDR (Merchant Discount Rate), UPI/BNPL (Unified Payment Interface/Buy Now Pay Later), NIM pressures, revolver improvement and others, which have resulted in keeping our earnings conservative.
"We are still not yet in a more stable economic environment, which is probably resulting in frequent challenges," they said.
The brokerage, too, has cut their near-term earnings by 10-15 per cent factoring in volume growth in cards issued, spends, slower expansion in NIM, and maintaining a conservative view on the potential impact of MDR, if any. It cut target price to Rs 925 from Rs 950.
"With credit cost elevated—not in sync with other large players—and a sticky cost of fund (CoF), we maintain 'REDUCE'.
"We are edging down the target to Rs 760 (from Rs 775) and are trimming revenue, Ebitda, and profit estimates by 6 per cent to 7.3 per cent for FY24, and by 5 per cent to 8 per cent for FY25," said Nuvama Institutional Equities.
Overall, SBI Card posted profit after tax of Rs 603 crore, up 15 per cent YoY. in Q2FY24, while net interest income (NII) grew 16 per cent YoY to Rs 1,290 crore.
The Card-in-force for the quarter grew 21 per cent YoY to 17.9 million, and card spends grew 27 per cent YoY.
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