Brokerages share mixed views on SBI Cards and Payment Services

While cost of funds and credit costs are seen rising, growth in business is estimated to be good

The only listed credit card outfit, SBI Cards and Payment Services (SBI Cards), delivered mildly encouraging results with some points of concern in the January-March quarter of the 2022-23 financial year (Q4FY23).

The profit after tax (PAT) was up 3 per cent year-on-year (YoY) (17 per cent quarter-on-quarter or QoQ) to Rs 600 crore. There was a rise in non-interest income by 32 per cent YoY (10 per cent QoQ) to Rs 2,090 crore due to 25 per cent YoY rise in fee income (85 per cent of total) and 113 per cent rise in business development income (12 per cent of total).

The NII (net interest income) grew 17 per cent YoY to Rs 1,200 crore, but higher cost of funds led to lower NIM (net interest margin) assessed at 11 per cent. Guidance indicates further rise in cost of funds is likely in Q1FY24 but it can stabilise or fall in the second half (H2), if the Reserve Bank of India or RBI holds rates.

In Q4, credit card spends hit Rs 71,700 crore, rising 32 per cent YoY and 4 per cent QoQ. Corporate spends, meanwhile, grew 32 per cent YoY (13 per cent QoQ), remaining at 23 per cent of the total. Retails spends (77 per cent share) grew 33 per cent YoY and 2 per cent QoQ. The company’s cards in force grew 22 per cent YoY, to 16.8 million in Q4, with new account additions up 37 per cent.

Gross receivables for the firm, rose 30 per cent YoY to Rs 40,700 crore in Q4, with Revolvers (revolving credit) growing 25 per cent, EMI by 42 per cent and transactors (customers repaying in full) by 27 per cent. The Revolver and EMI share was stable QoQ at 24 per cent and 37 per cent, respectively.

Credit costs remained high at 6.6 per cent of loans (up 120 basis points or bps YoY, and up 80 bps QoQ) as a higher modelled expected credit loss ratio resulted in a one-time cost of Rs 20 crore (about 20 bps, annualised).

Analysts will assume credit cost staying at 6 per cent for FY24 at the least. The gross non-performing assets (GNPA) and net NPA were both nearly stable, at 2.4 per cent and 0.9 per cent, respectively, and expected to stay close to those levels in FY24 and beyond. Yields improved by around 20 bps to 16.7 per cent but asset quality also deteriorated slightly with GNPA rising by 20 bps.

In business terms, SBI Cards has a range of offerings, including co-branded cards, to drive spends. Management targets addition of 0.9 to 1 million cards per quarter. Among other guidance, cost of funds is expected to increase by another 10-15 bps in Q1FY24 and moderation is expected from Q3, if RBI holds or cuts policy rates. Margins are likely to stabilise in H1FY24.  

Analysts have mixed views, given rising cost of funds and rising credit costs versus good growth in business in non-interest income. Most continue to offer ‘buy’, ‘hold’ or ‘accumulate’ recommendations with valuations ranging between Rs 835 and Rs 1,050. The wide range indicates the uncertainty. The Street response was positive.