SBICARD - SBI CARDS AND PAYMENT SERVICES LIMITED Share Price

Management's outlook for SBI Card indicates a committed focus on sustainable growth and enhancing their position in India's evolving digital payments landscape. The company is set to capitalize on the escalating adoption of digital payments, with expectations that the digital economy will contribute nearly 20% to India's GDP by 2026, surpassing USD 1 trillion by 2028.

Key forward-looking points discussed include:

1. Market Share and Growth: SBI Card holds an 18.9% market share in the cards-in-force segment. As of December 2024, it surpassed the milestone of 2 crore cards, reflecting strong customer trust. The aim is consistent quarter-on-quarter acquisition of around 1 million new accounts.

2. Revenue and Financial Performance:

   • Q4 revenue reached INR 4,832 crores, an 8% year-on-year growth.
   • Full-year revenue stood at INR 18,637 crores, also up 7% year-on-year.
   • Profit after tax for Q4 was INR 534 crores, showing a substantial 39% quarter-over-quarter increase.

3. Cost of Funds and Margins: The cost of funds is expected to trend downward, currently at 7.2%, aiding a net interest margin improvement over 11% in Q4. Expectations point toward relative stability in margins, with future rate cuts expected to enhance the situation gradually.

4. Spending Trends: Retail spending grew by around 18% year-on-year, with corporate spending rebounding by 60% quarter-on-quarter, indicating a recovery in consumer and corporate behaviors.

5. Asset Quality Improvement: The asset quality is improving, with a reduced gross NPA at 3.08% and a steady decline observed in both Stage 2 and Stage 3 balances.

6. Dividend: For FY 2024-25, an interim dividend of INR 2.50 per share has been declared.

Overall, management emphasizes a strategy centered on prudent risk management while focusing on long-term value creation amidst positive industry dynamics.

Earnings Call Q&A Summary

Question 1: "Provision coverage for the Stage 1 to 3 has seen significant changes. Can you explain the thought process driving this?"
Answer: The changes in the ECL rates stem from our annual model refresh. The overall ECL rate reduced slightly from 3.6% to 3.4%. A significant focus was placed on addressing Stage 2 balances, which have faced challenges, leading us to adjust the required provisions early. Stage 1 assets remain low due to our improved recovery processes. Such updates occur once a year, ensuring consistent modeling as per international standards.

Question 2: "Will the lower cost of funding drive NIM expansion?"
Answer: While lower funding costs will have a delayed positive impact on NIM, yields may also decline as interest rates drop. Our goal is to maintain steady NIM and potentially improve it over time, but we must consider these two factors together to assess future trends.

Question 3: "What is expected for credit cost normalization moving forward?"
Answer: Predicting sustainable credit costs six to seven quarters out is challenging due to various unknowns in the macroeconomic environment. We are monitoring the situation closely to ensure we continue on a positive trajectory while keeping risks in mind.

Question 4: "How has the corporate spend trend behaved and what led to its recent increase?"
Answer: The rise in corporate spends is due to seasonal factors and enhanced strategies in our corporate card segment. We expect this growth trend to continue, supported by ongoing efforts to optimize our corporate card offerings and regain market share.

Question 5: "What are the implications of the elevated gross write-off pool on customer behavior?"
Answer: The increased write-offs are part of our strategy to provision early for credit risk. Our models indicate we have better control over new acquisitions, with overall early delinquency rates improving compared to last year. We actively adjust our strategies based on cohort behavior.

Question 6: "What is the expected growth rate for receivables over the next year?"
Answer: We anticipate a receivables growth rate between 12% to 14% for this year. This growth is likely supported by a consistent addition of about 1 million new accounts quarterly.

Question 7: "What share does UPI spending hold in total retail spends?"
Answer: While we haven't disclosed a precise figure, our internal estimates suggest UPI spending is reaching close to a double-digit share of total retail spends.

Question 8: "Can you comment on the guidance for opex and cost-to-income ratio going forward?"
Answer: For FY '26, we're expecting the cost-to-income ratio to settle around 55% to 57%. While the current rate is lower, an anticipated increase in customer acquisitions and expenses will drive this change, specifically due to seasonal spending trends observed in past fiscal years.

This summary provides a cohesive view of the major questions and detailed answers from the Q&A section of the earnings call transcript without omitting any pertinent details.