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Strong performance despite further decline in Revolvers share

Our view

SBI Cards delivered a beat of 2% at PPOP level and 26% on earnings which was characterized by a) sustained strong traction in core business momentum (27% yoy growth in new card additions, overall spends/retail spends up 51%/40% yoy and 7% qoq/25% yoy growth in receivables), b) further decline in Revolvers’ share (declined to 25%, contrary to management guidance) and this impacting portfolio yield/NIM (down 140/80 bps qoq), c) lower opex intensity (seasonality factor + initiatives towards lowering acquisition cost) and d) sturdy asset quality performance (strong collections/curtailed flows + lower write-offs). PAT was at a life-time high and RoA/RoE of 7%/30% stood at better than pre-pandemic level.

Management remains confident about maintaining market share profitably despite increased competitive intensity. Revolvers’ share was impacted by highest-ever spends in March but is likely to gradually recover (though co. does not expect it to reach 33- 34% in foreseeable future). Increasing share of card addition from self-employed segment and from Tier 3 & beyond locations is likely to aid revolver share recovery. This could mitigate the impact of the expected hardening in funding cost on NIMs. Driven by better collection environment and receivable mix trends (by customer type & demographic segment), the credit cost may continue to remain at BAU level (was even lower in Q4). Portfolio construct (std. OD and NPL buckets) has reverted to prepandemic level.

We raise FY23-24 earnings/ABV estimates by 5-12%/3-5% respectively by marginally lifting CIF/Receivables growth assumptions and moderating credit cost estimates. Despite modelling 25 bps MDR reduction (partial recoup through opex), we estimate RoA/RoE to be 5.5-6%/24-26% which was the pre-pandemic metric (adjusted for capital base).

We believe that stock price represents overstretched concerns on a) MDR reduction and lack of flexibility to recoup it, b) structural pressure on cost-income/profitability from increased competitive intensity, c) impact on growth from rising scale of the new-age card cos. and BNPL. We believe card base/spend growth will remain strong for SBI cards. Being the only listed pure-play credit card issuer with significantly higher profitability than Banks and NBFCs (in good times as well as bad times), SBI Cards would continue to command a premium valuation. Reiterate BUY with 12m PT of Rs1260.

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