SBI Cards and Payment Services Ltd. share price target

Q3FY22 performance of SBI Cards (SBIC) was directionally strong in terms of
gross account additions (1mn), spending growth (46% QoQ) and asset quality
(credit cost/GNPA of 9.0%/2.4% vs 9.3%/3.4% in Q2FY22). The activation rates
(30-day) are also high at 52% in Q3FY22 vs 50% in Q2FY22. Maintain buy with share price target of Rs. 1060

SBICARD reported in-line performance, characterized by sharp growth in spending (47% YoY), while PAT grew 84% YoY to INR3.86b (MOSLE: INR4b). PPOP grew 23% YoY, aided by steady revenue growth (5% beat). Margins stood at 14% (14.1% in 2QFY22), and the management indicated the revolve rate has bottomed out. Retail and corporate spending grew robustly at 36% YoY and 93% YoY, respectively. The GNPA ratio moderated 96bp QoQ to 2.4%, while NNPA declined 8bp QoQ to 0.8%. PCR declined 780bp QoQ to 66%, with the RBI-RE book...

stay robust clocking 53%QoQ growth aiding fees/others (15%QoQ/31%YoY). Going forward, while credit costs pressures are expected to recede (7-8% from current 9%) in commensurate with reduction in RBI RE stock (already down to 2% of overall loans from 9% a year ago), the increased costs (200300bps rise in cost-income over FY22-24 to 62%) to offset the same. Moreover, as normalization returns, we foresee strong fees traction (16%CAGR) to compensate for tepid NIMs (13%+) over FY22-24. Improving asset quality trends to compensate for growing cost pressures especially led by competition & regulatory hindrances (regulation on MDR) and...

RBI proposed to issue a discussion paper in the next one month (link to RBI statement) to cover aspects related to charges involved in various digital payment modes covering Credit Cards, Debit Cards, PPIs, UPIs, etc. This is with the intent to make digital transactions affordable to users and economically viable to providers. SBICARD has corrected ~9% over the past two days on fears of a reduction in MDR charges, which can adversely impact profitability. SBICARD's spend-based fee constitutes 45-54% of total fees and corresponds to 18-23% of total revenue. As per our sensitivity analysis, we estimate 8-17% earnings impact in case MDR on Credit Cards is reduced by 10-20%. As...

Total spends in Q2FY22 came in at Rs434bn, up 47% YoY and 31% QoQ. Retail spends grew 29% QoQ while corporate increased 36% QoQ. Retail spend suggests that, except for travel, hotels and entertainment, most other categories saw an improved performance in Q2FY22
over Dec’19-Feb’20 (pre-covid) levels.

Net interest income declined 9.3% YoY in Q2FY22 to reach Rs. 919cr due to NIM contraction (-286bps YoY to 14.1%). Pre-provision operating profit dropped 7.2% YoY to Rs. 1,058cr,...

...

...

SBICARD reported a steady 1QFY22, with a sharp beat in earnings, supported by lower provisions, as operating performance came in line. Overall spends/receivables witnessed a sequential decline due to the lockdown during Apr-May'21, while showing a gradual improvement from Jun'21 onwards. Margin too witnessed an expansion of ~160bp, led by an improving loan mix, while fee income stood largely stable QoQ. Asset quality ratios saw a significant improvement, led by higher write-offs, while the RBI RE book declined to INR13.8b (6% of loans v/s 8% in 4QFY21)....

Net interest income declined 18.3% YoY in Q4FY21, due to NIM contraction, impacted by lower interest income yield (-507bps YoY) Pre-provision profit dropped 7.6% YoY to Rs. 878cr, while PAT jumped...