Weak Q3 FY24 Performance Hits SBI Card and AU Small Finance Bank; Shares Decline

SBI Card and AU Small Finance Bank face market challenges as their Q3 FY24 performance falls short of expectations, leading to a notable decline in their stock prices. Analysts attribute the dip to rising provisions, interest rates, and funding costs. Here’s a detailed overview of their financial performance and the market’s reaction.

SBI Card’s Q3 FY24 Performance:

1. Net Profit: SBI Card reported an 8% YoY rise in net profit to Rs 549 crore. However, the profit slipped 4% sequentially.
2. Revenue Growth: Total revenue witnessed a substantial 30% YoY growth, reaching Rs 4,742 crore.
3. Provisions and Credit Cost: Provisions rose by 19.1% QoQ to Rs 882.9 crore, with credit cost increasing from 6.7% in Q2 to 7.5%. The cost of funds also increased to 7.6% from 7.1% in Q2 FY24.
4. Asset Quality: The asset quality showed signs of strain, with Gross Non-Performing Assets (GNPA) rising to 2.64% sequentially.
5. Outlook Concerns: Analysts downgraded the stock, citing concerns over elevated provisions, interest rates, and funding costs. The RBI’s decision to increase risk weights for unsecured loans also adds to the challenges.

AU Small Finance Bank’s Q3 FY24 Performance:

1. Net Interest Margin (NIM): AU Small Finance Bank faced pressure as its NIM declined to 5.5% in Q3 FY24 from 6.2% in the same period last year. Excluding the securitized book, NIM moderated by 30 basis points.
2. Asset Quality Deterioration: The bank’s asset quality worsened, with GNPA rising to 2% from 1.9% in Q2 FY23.
3. Margin Challenges: Despite a flat sequential NIM, AU Small Finance Bank’s margins were impacted by a decline in asset quality and securitization benefits.

Analyst Insights and Market Reaction:

1. SBI Card Outlook: Analysts highlight the challenges faced by SBI Card, including elevated provisions and a weak margin outlook. The company’s asset quality deterioration raises concerns for Q4 and 1H FY25.
2. AU Small Finance Bank Assessment: AU Small Finance Bank’s asset quality deterioration and margin challenges prompt market concerns. Analysts note the lower end of the guided margin range.

Conclusion:

The weak Q3 FY24 performance of SBI Card and AU Small Finance Bank has triggered a decline in their stock prices. Elevated provisions, interest rates, and funding costs, along with deteriorating asset quality, have raised concerns among analysts. Investors are advised to closely monitor these developments and factor in the challenges faced by these financial institutions.