SBI Cards gains 5%, hits new high on assets quality improvement in Q3

With adequate provisions already accounted in earnings, growth steadily making a comeback led by spends and fresh card issuances, analysts see SBI Cards to be an early player exiting out of Covid-19

Shares of SBI Cards and Payment Services (SBI Cards) rallied 5 per cent to Rs 1,026 on the BSE in the intra-day trade on Froday after a sharp improvement in asset quality during October-December quarter (Q3FY21). The stock was trading at the highest level since its listing on March 16, 2020.

At 12:11 pm, SBI Cards was trading 4 per cent higher at Rs 1,020, as compared to a 0.73 per cent decline in the S&P BSE Sensex. The trading volumes on the counter more-than-doubled with a combined 3.5 million equity shares having changed hands on the NSE and BSE till the time of writing of this report.

SBI Cards said the gross non-performing assets (GNPA) were at 1.61 per cent of gross advances as on Q3FY21 as against 2.47 per cent as on Q3FY20. Net non-performing assets (NNPA) were at 0.56 per cent as against 0.83 per cent in a year ago quarter. Proforma GNPA as on Q3FY21 stands at 4.51 per cent and NNPA at 1.58 per cent, it said.

However, SBI Cards reported 50 per cent year on year (YoY) decline in net profit at Rs 210 crore, led by 3 per cent YoY decline in operating revenues and 70 per cent YoY increase in provisions.

"SBI Cards Q3FY21 earnings was characterized by sharp improvement in asset quality (proforma GNPAs fell 295 basis points (bps) QoQ, credit costs declined ~430bps, recoveries surged 29 per cent QoQ) and continued business traction (QoQ growth in cards-in-force or CIF of 5 per cent, new accounts acquisition at 33 per cent and spends 27 per cent)," analysts at Prabhudas Lilladher said in result update.

Provision sufficiency with limited incremental requirement, controlled delinquencies as the company tightens credit filters further and continued business momentum (shift in portfolios on corporate side, pick-up in Point of Sale or POS activities) should gravitates SBI Cards on path of revival in FY22, the brokerage firm said.

"With adequate provisions already accounted in earnings, growth steadily making a comeback led by spends and fresh card issuances we see SBI Cards to be an early player exiting out of Covid. We expect the premium valuations to sustain for its solid earnings and growth structure." Kotak Securities said in a note.

The performance of the quarter suggests that the impact of Covid-19 is probably well recognized and firmly behind. The company has shifted its focus on growth. We like SBI Cards as we find this space offers a good mix between lending and payments, a combination that is likely to result in the company enjoying best-in-class multiples, the brokerage firm said.