Why SBI Cards stock price is falling?

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SBI Cards and Payment Services Q2FY21 Results Analysis

Introduction

SBI cards and Payment services stock plummeted by ~11% in the last week within 2 days after the announcement of its latest quarterly results. In this blog, let us understand what were the main reasons for this fall and also analyse company’s latest quarterly results.

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Why SBI Cards stock price is falling?

Recent fall in the stock price

SBI Cards and Payment Services share price movement
SBI Cards and Payment Services share price movement
  • Here, as we can see the stock has fallen down ~14% from the 52- week high of INR 918 on 21st October’20 to INR 787 on 23rd October’20. Let us take a look at the reasons mentioned below for the recent fall in share price.

1. Increased Gross NPA

SBI Cards and Payment Services - Gross NPA
SBI Cards and Payment Services – Gross NPA
  • Company’s Gross NPA was on a decreasing trend till Jun’20. However, in Sept’20 , the Gross NPAs have increased significantly mainly as company is in the business of unsecured lending.
  • During the current pandemic, disposable incomes of people are affected leading to higher defaults on loans and increased NPAs.
  • As per Hon. SC order accounts that were not NPA as on Aug 31, 2020, shall not be declared NPA till further orders. Proforma NPA is after including such accounts that would have been declared NPA in absence of the order.
  • Including these proforma accounts, company’s gross NPAs are 7.5%.
  • This is a very steep increase in NPAs and one of the main reasons for the fall in stock price.
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2. Provision Coverage Ratio Trend

SBI Cards and Payment Services - Provision Coverage Ratio Trend
SBI Cards and Payment Services – Provision Coverage Ratio Trend
  • As the Gross NPAs are rising, provision coverage ratio has fallen to 65.6% without including the proforma NPAs. With including the Proforma NPAs, the PCR falls to 40%, which is quite low.

3. Impairment Losses

SBI Cards and Payment Services - Asset Quality
SBI Cards and Payment Services – Asset Quality
  • Company’s impairment losses have increased significantly, which steeply increased the net credit costs to INR 765 crores.
  • This is again a drag on profitability and hence resulted in stock price decline.

4. Profitability

SBI Cards and Payment Services - Revenue and Profitability
SBI Cards and Payment Services – Revenue and Profitability
  • Here, gross revenues have grown by 5% and there is a healthy growth in Pre-Provisioning Earnings of 37%.
  • However the sudden surge in impairment losses of 162% has resulted in drag on profitability, resulting in profits declining by 46%.

5. Key Ratios

SBI Cards and Payment Services - Key Ratios
SBI Cards and Payment Services – Key Ratios
  • Company has healthy return on assets.
  • Also, company’s Capital Adequacy Ratio (CAR) has increased from last quarter, which is a positive sign.
SBI Cards and Payment Services - Key Metrics
SBI Cards and Payment Services – Key Metrics
  • Here cards in force has increased value wise as well as market share wise.
  • However due to lower disposable incomes in pandemic, the spends have decreased by ~11%, whereas the market share in spends has increased.
SBI Cards and Payment Services - Key Metrics
SBI Cards and Payment Services – Key Metrics
  • Receivables have increased by meager 4%, however company has done a good job in maintaining its cost to income ratio despite the increasing NPAs.
  • This has helped company in achieving decent growth of 37% in Pre-Provisioning Profit.
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Conclusion

Overall, the latest quarter performance might cause adverse impact on stock price in short term. Also there can be an impact on profitability in 1-2 quarters due to the rising NPA issue, however there are chances of better recovery as well.



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