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Informist, Monday, Jul 22, 2024

By Nishat Anjum

MUMBAI – Notwithstanding a rise in cost of funds, SBI Cards and Payment Services is likely to report a modest growth in net profit in the June quarter helped by a healthy growth in assets under management. The credit card company is likely to report a growth of 6.6% year-on-year in net profit to 6.32 bln rupees in the June quarter, according to an average of estimates of eight broking firms. Sequentially, the net profit is seen contracting 4.5%.

The brokerages pegged net profit in the range of 5.90 bln rupees and 7.26 bln rupees.

"We expect the credit cost of SBI Cards to remain elevated at 7.9% during Apr-Jun due to elevated stress in the credit card segment," Nomura Equity Research said in a research report. In Jan-Mar, India's only standalone listed credit card company reported a 50% year-on-year increase in its credit costs, which was at 9.44 bln rupees. The cost-to-income ratio was at 51.1%. In the June quarter, brokerages expect the cost-to-income to remain elevated.

The net interest margin for the credit card company is expected to continue to contract due to the rising cost of funds pressures, which would be largely due to change in risk weights for non-banking finance companies, brokerages said. 

The company's net interest income is seen rising 19.8% on year to 14.77 bln rupees in Apr-Jun, according to the average of estimates. The net interest income is likely to rise on the back of a 20% year-on-year increase in receivables, Kotak Institutional Equities said. The share of revolving credit cards is likely to remain largely unchanged on a sequential basis, the brokerage said. In the previous quarter, the receivables were at 508.46 bln rupees, up 25% on year.

Brokerages expect credit card spending to witness modest growth. In Jan-Mar, card spending rose 11% on-year to 796.53 bln rupees.

On an annualised basis, provisions are expected to increase by around 30% as incremental provisions are mainly on account of higher spending and other credit costs, Kotak Institutional Equities said. It expects provisions to remain high as the credit card company is seeing stress in its portfolio.

Brokerages seem to be divided on the asset quality of the credit card company. While Axis Securities expects the asset quality to remain stable, Motilal Oswal expects the asset quality ratios to deteriorate further. In the March quarter, the gross non-performing asset ratio increased to 2.76%, up 41 basis points from a year ago. The net NPA ratio was at 0.99%, up 12 bps from a year ago. 

The company has not yet announced the date for its Apr-Jun earnings. Key monitorables will include margin outlook and credit cost, brokerages said.

At 1520, shares of the company were 1.4% higher at 728.40 rupees on the National Stock Exchange.

Following are the Apr-Jun earnings estimates for SBI Cards and Payments Services, in mln rupees, based on reports compiled by Informist from eight brokerages: 

End

Edited by Saji George Titus

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