Why SBI Cards stock price is falling?

SBI Cards and Payment Services Q2FY21 Results Analysis

Why is SBI Cards and Payment services stock price falling? Major Reasons behind the fall and Quarterly results analysis

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 the company’s latest quarterly results.

Why is SBI Cards’ stock price falling?

Recent fall in the stock price

• Here, as we can see the SBI Card 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 Card’s Gross NPA was on a decreasing trend till Jun’20. However, in Sept’20, the Gross NPAs have increased significantly mainly because the company is in the business of unsecured lending.
• During the current pandemic, the disposable incomes of people are affected leading to higher defaults on loans and increased NPAs.
• In accordance with Hon. NCPA accounts that were not declared NPA by August 31, 2020 will not be declared until further orders. In form NPA, we include any account that, in the absence of the order, would have been declared NPA.
• Including these proforma accounts, the 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.

2. Provision Coverage Ratio Trend

• As the Gross NPAs are rising, the provision coverage ratio has fallen to 65.6% without including the proforma NPAs. Including the Proforma NPAs, the PCR falls to 40%, which is quite low.

3. Impairment Losses

• SBI Cards’ 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

• Here, gross revenues have grown by 5% and there is healthy growth in pre-provisioning Earnings of 37%.
• A sudden surge in impairment losses increased by 162% has resulted in a 46% decline in profits due to the impact of the sudden impairment losses.

5. Key Ratios

● SBI cards have a healthy return on assets.
● Also, SBI Card’s Capital Adequacy Ratio (CAR) has increased from last quarter, which is a positive sign.

• Here SBI cards in force have increased value wise as well as market share wise.
• However, due to lower disposable incomes during the pandemic, the spending has decreased by ~11%, whereas the market share in spending has increased.

• Receivables have increased by 4%, however, the company has done a good job in maintaining its cost to income ratio despite the increasing NPAs.
• This has helped the company in achieving decent growth of 37% in pre-provisioning Profit.

Conclusion

As a result, the stock price might suffer in the near term as a result of the latest quarter’s performance. The rising NPA issue may also have an impact on profitability in 1-2 quarters, but there is a chance that the company will recover more quickly.