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Robust growth in spends; lower provisioning drives big earnings beat

Margin contracts 80bp QoQ as Revolver mix moderates to 25%

SBICARD reported a mixed quarter, with a miss in NII/PPOP, while net earnings delivered a significant beat, aided by a sharp decline in provisions. PAT grew 231% YoY to INR5.8b (MOSLE: INR4.5b).

NIM contracted by 80bp to 13.2% in 4Q (v/s 14% in 3QFY22) due to a significant (-110bp) moderation in yields as the Revolver mix fell to 25% v/s 27% in 3QFY22. Trends in spends both Retail/Corporate was healthy at 40%/102% YoY. Overall spends grew 51% YoY.

GNPA ratio moderated marginally by 18bp QoQ to 2.22%, while NNPA fell 5bp QoQ to 0.78%. RBI-RE book declined to sub-1%. RoA/RoE stood robust at 7%/30.4% in 4QFY22.

We expect the company to deliver 50% earnings CAGR over FY22-24, leading to a RoA/RoE of 7.3%/30.6%. We maintain our Buy rating.

Robust growth in spends; RBI-RE book declines to below 1%

SBICARD reported a PAT of INR5.8b (+231% YoY/+51% QoQ), led by lower credit costs, as provisions declined to INR3.9b (-37% QoQ) on improving asset quality and reversal of management overlay provisions of INR760m. Gross/net credit costs fell to 5.2%/3.1% (v/s 9%/7% in 3QFY22).

NII was flat QoQ at INR10b (7% miss) as margin saw a sharp (80bp) contraction to 13.2%. This was led by a decline in revolver mix, which moderated to 25% (v/s 27% in 3QFY22). Other income grew 17% QoQ, adjusted for provision write-backs of INR1.08b (due to GST refunds).

OPEX grew 23% YoY, but fell 8% QoQ, due to festive offers/promotion campaigns in 3QFY22. PPOP grew 25% YoY, while the cost-to-income ratio moderated to 57.4% (-268bp QoQ).

Cards-in-force grew 17% YoY and 5% QoQ to 13.8m. New account sourcing was stable ~1m (+27% YoY and flat QoQ), with the open market channel contributing 54% to total sourcing (57% on an outstanding basis).

Overall spends grew 51% YoY, within which Retail/Corporate spends rose 40%/102% YoY. However, this fell marginally down QoQ due to the Omicron COVID variant in Jan’22 and the festive season in 3QFY22. The share of online Retail spends increased to 54.4% FY22 from 52% in FY21 due to rapid digitization and growing comfort and convenience of shopping online.

GNPA ratio moderated by 18bp QoQ to 2.22%, while NNPA fell 5bp QoQ to 0.78%. PCR stood broadly stable ~65%. The RBI-RE book declined to sub-1% (v/s 2% in 3Q and 4% in 2QFY22). ECL declined to 3.5% (v/s 4% in 3QFY22). The company holds management overlay provisions of INR510m.

Highlights from the management commentary

The recent RBI Master Circular on Credit Cards is an important regulation and is applicable from 1st Jul’22. However, SBICARD is well covered on most aspects.

From Oct’21 to Feb’22, the rate of conversion of spends to Revolver has been increasing as per its internal analysis. The management is confident of raising this gradually. The industry too is witnessing a moderation in Revolver mix.

The share of Revolver balance declined in 4QFY22 as higher spends (INR30b) in Mar’22 was not converted to Revolver balance by the month-end.

Valuation and view

SBICARD reported a mixed quarter. The miss in NII/PPOP was offset by a sharp decline in provisions. Margin saw an 80bp QoQ contraction as the Revolver mix fell to 25%, which dragged revenue growth. Despite the Omicron COVID wave in Jan’22, growth in spends remained robust and is likely to stay healthy as economic activity picks up. RBI-RE book continues to decline gradually and now forms less than 1% of total receivables. Improving asset quality will continue to result in controlled credit costs. We expect the company to deliver 50% earnings CAGR over FY22-24, leading to a RoA/RoE of 7.3%/30.6%. We maintain our Buy rating with a TP of INR1,100 per share (29x FY24E EPS).

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