SBI Cards Shares Jump To A Record As Asset Quality Improves In Q3

Shares of SBI Cards and Payments Services Ltd. jumped to a record high as asset quality of the nation's only pure-play credit card issuer improved during the third quarter.

Gross non-performing assets ratio of the subsidiary of India's largest lender stood at 1.61% during the reported quarter compared with 4.3% in the preceding three months, according to its investor presentation. Its net NPAs were at 0.56% against 0.83% in the July-September period.

But according to the Supreme Court's order on the interest-on-interest case, the company didn't classify certain accounts as NPA after Aug. 31, 2020. Proforma, gross and net NPA ratios of SBI Cards would have been 4.51% and 1.58%, respectively. That compares with 7.46% and 2.70% proforma gross and net NPAs in the second quarter.

SBI Cards' gross write-offs during the quarter stood at Rs 648 crore compared with Rs 218 crore in the preceding three months and Rs 292 crore a year ago.

Other highlights (year-on-year)

• Net profit fell by half to Rs 209.7 crore as provisions rose.
• Overall revenue from operations fell 3% to Rs 2,403.2 crore.
• Total management overlay provisions for the quarter were at Rs 1,113 crore compared with Rs 758 crore a year ago.

Profitability was also impacted by higher credit costs. “Credit costs recovered to 10.44% from 14.6% in Q2 but remained elevated. This drove net profit lower,” HSBC said in a post-earnings note.

But a shift towards online spends and opening of new categories bode well for the long-term outlook, the research firm said as it maintained its ‘buy' rating on the stock and raised price target to Rs 1,130 apiece from Rs 825.

The company's new account volumes rose 8% year-on-year to 9.18 lakh during the quarter.

“Provision sufficiency with the limited incremental requirement, controlled delinquencies as credit filters are tightened, and continued business momentum should put SBI Cards on the path of revival in FY22,” Shweta Daptardar of Prabhudas Lilladher, said in a post-earnings note.

Shares of SBI Cards gained as much as 4.6% to a record high of Rs 1,024.9 apiece. All eight analysts tracking the company suggest a ‘buy'. The average of Bloomberg consensus 12-month price target implies an upside of 6.1%.