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Robust growth in card spends, outlook positive

SBI Cards & Payment Services Ltd (SBI Cards) is India’s leading issuer of credit cards. The company offers a wide range of value-added payment products and services. It operates in more than 130 cities in the country

• NII rose 16.1% YoY in Q2FY24 to Rs. 1,297cr. NIM contracted 90bps YoY to 11.3% owing to increase in cost of funds.

• The company registered a 20.7% YoY growth in retail spends and 55.3% YoY growth in corporate spends.

• Continued momentum in card spends, healthy card additions and digital transformation augur well for the company in the long term in the underpenetrated Indian market. Hence, we upgrade our rating on the stock to BUY with a revised target price of Rs. 874 based on 24x FY25E earnings per share (EPS).

NIM contracts further

In Q2FY24, SBI Cards’ interest income increased 28.1% YoY to Rs. 1,902cr, while interest expense surged 64.5% YoY to Rs. 605cr. Consequently, NII grew 16.1% YoY to 1,297cr. NIM shrank 90 bps YoY to 11.3%, owing to lower yield on account of product mix and rising cost of funds. Income earned from membership fees rose 22.5% YoY to Rs. 1,974cr. Further, with the growth in spends, receivables grew 19.5% YoY to Rs. 45,078cr. Cost-to-income ratio improved 230bps YoY to 57.1%, aided by lower other operating expenses. However, profit after tax came in at Rs. 603cr (up 14.7% YoY), moderated by elevated provisioning (up 35.8% YoY).

Key quarter highlights

• In Q2FY24, the company’s cards-in-force (CIF) was 1.79cr, with a net addition of ~600,000 cards. Its CIF market share, though, shrank 40bps QoQ to 19.2%.

• Also, credit card spends during the quarter, increased 27.1% YoY to Rs. 79,164cr, of which retail contribution was Rs. 61,446cr (up 20.7% YoY). Market share in credit card spends was 17.9%.

• 9.0% of the Rupay cardholders have enrolled for UPI usage. Monthly average UPI spends per account stood at Rs. 11,000. Departmental stores and grocery, utilities and restaurants have been the top categories for UPI spends.

Stable asset quality

The company’s advances grew 19.3% YoY to Rs. 43,556cr. Gross non-performing assets (GNPA) and net non-performing assets (NNPA) ratios were stable at 2.43% and 0.89%, respectively (vs 2.41% and 0.89% in Q1FY24). Credit cost reduced 10bps on sequential basis to 6.7%, aided by focused collections and portfolio actions. Provision coverage ratio stood at 64.1%. Liquidity coverage ratio was 85.0%, well above the statutory mandate of 70.0%. Capital adequacy ratio was 23.3%.

Outlook and valuation

SBI Cards delivered a superior performance in Q2FY24. Sustained momentum in card spends, healthy card additions and digital transformation augur well for the company’s future performance. In the near term, however, NIM levels may remain under pressure owing to rising cost of funds. Credit cost may remain elevated as the company is experiencing slight stress in the retail consumer loan portfolio. We are optimistic of the company’s long-term growth prospects in the underpenetrated Indian market. The stock is currently trading at attractive valuation and hence, we upgrade our rating on the stock to BUY with a revised target price of Rs. 874 based on 24x FY25E EPS.

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