Street disappointed with SBI Card's Q4 performance

SBI  Cards & Payment Services reported mixed results for the January-March quarter (Q4) of FY24.

While it managed to deliver strong earnings growth, it saw a perceptible decline in net interest margin (NIM) and suffered deteriorating asset quality.

Taken together, the market was disappointed with the share dropping 3.5 per cent.

The margin contraction was 39 basis points (bps) quarter-on-quarter (Q-o-Q) to 10.9 per cent coupled with poorer asset quality.

The gross NPA was up 20 bps Q-o-Q to 2.8 per cent.

However, profit after tax (PAT) grew 21 per cent Q-o-Q to Rs 660 crore, while net interest income rose 2 per cent Q-o-Q.

The reason for higher PAT despite the margin drop was a reduction in operational expenses (opex).

The share of the revolvers in the mix improved to 24 per cent as against 23 per cent in Q3FY24, and the EMI mix declined to 37 per cent as against 38 per cent in Q3FY24.

NII rose 21 per cent Y-o-Y (2 per cent Q-o-Q) to Rs 1,410 crore.

The margin decline of 39 bps Q-o-Q to 10.9 per cent, was owing to a sharp 45 bps decline in yields and elevated borrowing costs.

Spending growth decelerated by 18 per cent Q-o-Q, as corporate spending declined 35 per cent Y-o-Y due to the impact of the recent RBI guidelines.

Retail spending, however, grew 25 per cent Y-o-Y. Gross credit costs and expected credit loss (ECL) came in higher at 7.6 per cent and 3.5 per cent in Q4FY24.

Asset quality analysis

The pressure on asset quality may be of some concern, with GNPA and NNPA ratios increasing 12bp and 2bp Q-o-Q to 2.76 per cent and 0.99 per cent respectively.

The PCR or provisioning coverage ratio improved to 64.9 per cent in Q4FY24.

The drop in corporate spending also led to a decline in overall opex, and as a result, the RoA (return on assets) and RoE (return on equity) improved to 4.7 per cent and 22.2 per cent respectively.

Analysts have generally cut their FY25 EPS estimates after factoring in the higher credit costs and likely continuing margin pressure.

The fee income declined 13 per cent Q-o-Q and formed 53 per cent of total income.

But opex was also down 3 per cent Y-o-Y, down 21 per cent Q-o-Q at Rs 1,910 crore.

The pre-provision operating profit rose 28 per cent Y-o-Y and the cost/ income ratio declined to 51 per cent (60 per cent in Q3FY24 and 57 per cent in Q2FY24).

Card metrics overview

Cards-in-force rose 13 per cent Y-o-Y (2 per cent Q-o-Q) to 18.9 million.

New card sourcing declined 6 per cent Q-o--Q to 1 million (down 25 per cent Y-o-Y), with the open market channel contributing 56 per cent to total sourcing.

Spending growth moderated to 11 per cent Y-o-Y as corporate spending declined 35 per cent Y-o-Y due to both seasonal factors and also due to revised RBI guidelines.

Receivables grew at a pace of 4 per cent Q-o-Q (up 25 per cent Y-o-Y).

The company management says that gross credit cost stood at 7.6 per cent in Q4FY24 versus 7.5 per cent in Q3FY24.

The company expects the average credit cost for FY24-25 to be lower than the current levels but maybe still above 7 per cent due to the RBI-mandated risk weights and elevated interest costs.

Manag­ement also believes that high interchange (1.9 per cent) corporate spe­nds (where the merchant pays mo­re) will normalise in one or two quarters.

Some analysts also be­li­eve that SBI Cards may need to ra­ise Tier-I capital at some stage and this could impact share valuations.

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