SBI Cards Q3 Results Review- Margins Remain Under Pressure; Asset Quality Deteriorates Slightly: Motilal Oswal

Motilal Oswal Report

SBI Cards and Payment Services Ltd. reported a weak quarter as higher provisions dragged down net earnings and pre-provision operating profit came in slightly below our estimate. Profit after tax grew 32% YoY to Rs 5.1 billion (13% miss).

Margins declined 70 bps QoQ to 11.6% in Q3 FY23 due to a lower revolver mix (24%) and a higher cost of funds. Growth in spends was healthy at 11% QoQ, with corporate spends up 25% and retail spends up 7% QoQ. 

Gross non-performing asset/net non performing asset ratios increased by 8 bps/2 bps QoQ to 2.22%/0.8%. Provision coverage ratio was stable at ~64%. Return on asset/return on equity came in at 4.8%/22.0%.

We cut our estimates by 5-7% to factor in lower net interest income and slightly higher provisions. We estimate SBI Card to deliver a 34% earnings compound annual growth rate over FY23– 25, leading to RoA/RoE of 6.5%/27.9%.

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