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June trend indicates recovery in spend post dip in May

We expect total credit card spend in Q1FY22 to be 8% lower than in Q4FY21 at an aggregate level. For SBI Credit Cards (SBIC), we expect the total spend to be Rs333bn in Q1FY22E vs Rs359bn in Q4FY21. At the systemic level, the impact of covid second wave on credit card as well as other payments, has been much less than during the first wave, and recovery too has been faster.

* Total credit card (CC) spend of Rs547bn in May’21 was down 7% MoM in line with expectations (primarily due covid second wave). Despite sequential decline, May’21 CC spend remained higher than monthly CC spend between Apr-Sep’20. This indicates that the impact of the second wave is significantly less than the first. One can expect recovery in Jun’21 given: a) 12% MoM growth in UPI payments in Jun’21, and b) average daily POS/e-commerce spend has been 22% higher in Jun’21 at Rs16bn vs Rs13bn in May’21. Credit card segment has also outperformed debit card considering that the ratio of credit card to debit card spend has remained at >1 since Jan’21 (ratio in May’21 stood at 1.17x). This ratio had slipped to <1 post Covid 1.0 between Apr-Dec’20.

* Relative positioning of SBIC marginally declined in May’21: SBIC spend / CIF market share stood at 18.3% / 19% in May’21 vs 19.6% / 18.4% in May’20, and 18.7% / 19.2% in Apr’21. Due to the second wave, May’21 would not be counted as a representative month.

* CC spend per transaction rose 9% MoM in May’21 for industry vs 7% for SBIC.

* Trying to assess the Q1FY22 card spend from May’21 numbers – an empirical approach. Based on increasing UPI to card spend ratio, we had projected card spend at Rs550bn in May’21 vs actual spend of Rs547bn. We continue to see sequential growth of 22% in Jun’21 (based on trends seen in average PoS and ecommerce spends in Jun’21). Assuming SBICs market share of 18.3% in Jun’21, its total spend in Q1FY22 could be ~Rs333bn. Assuming ~20% higher spend YoY for the rest of FY22E, total spend for the fiscal could be Rs1.57trn for SBIC – in line with our estimates.

* Expect Rs3.55bn PAT in Q1FY22: We expect Q1FY22 total spend at Rs333bn and loan outstanding of Rs266bn. We expect NIM of 15.8% (vs Q4FY21 NIM of 13% due to increase in EMI and Revolver mix) and credit cost of 7.9% (annualised) in Q1FY22 (vs 11.4% in FY21). We expect other operating expenditure at Rs10.2bn (3.1% of the spend in Q1FY22 vs 3.1% in Q4FY21). We expect this to translate into PAT of Rs3.55bn in Q1FY22E.

* We remain positive on SBIC. Overall estimated impact of covid second wave is significantly lower than the first on account of better preparedness to manage all business functions digitally and rolling nature of lockdowns. RBI Re book continues to run off on expected lines and the overall restructuring quantum is expected to be much lower in the course of Covid 2.0. SBIC is now better prepared to make a calibrated journey post the experience in FY21. We remain positive on the company’s long-term fundamentals (PPOP / PBT grew 38% / 23% respectively between FY17- FY21). Maintain BUY with a target price of Rs1,205 (unchanged) based on 40x FY23E EPS of Rs30.

* UPI continues to outperform. UPI’s market share has increased from 8.1% in Jan’20 to 11.7% in Mar’21 and 18.3% in May’21. The ratio of UPI to credit card spend has continued to gradually increase from 3.24x in Jan’20 to 6.97x in Mar’21 and 8.96% in May’21. Within UPI, the value market shares of Google Pay and PhonePe remain at 37% and 47% respectively as at Jun’21.

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