SBI Cards and Payment Services Rating- buy; Robust growth in retail spends

SBI Cards and Payment Services Rating: buy; Robust growth in retail spends

SBI Cards & Payment Services’s reported a muted Q2FY23, with net earnings dragged by higher provisions, even though PPOP growth stood in line. PAT grew 52% y-o-y to `5.3 bn (11% miss). Margin fell 90b q-o-q to 12.3% on the back of a decline in the revolver mix (24% v/s 26% in 1QFY23) and higher cost of funds. Trends in retail spends were strong at 45% y-o-y, while corporate spends witnessed a slight moderation (34%). Overall spends rose 43% y-o-y. GNPA ratio improved by 10bp q-o-q to 2.14%, while NNPA ratio was stable at 0.78%. We estimate SBICARD to deliver 41% earnings CAGR over FY22-24, leading to a RoA/RoE of 6.5%/ 28.2%. We maintain our Buy rating with a TP of `1,000.

SBICARD reported a PAT of `5.3 bn, driven by higher provisions that stood at `5.5 bn. NII grew 22% y-o-y to `11.2 bn, with margin declining by 90bp q-o-q to 12.3%. This was led by a decline in the revolver mix to 24% and higher cost of funds. Revolver mix witnessed a decline on account of higher spends in Sep’22 due to the festive season, which is likely to revolve gradually.

The share of online retail spends grew to 57.8% in 1HFY23 from 55.2% in Q1FY23 due to rapid digitisation and growing comfort as well as the convenience of shopping online.

SBICARD launched a new variant ‘Cashback SBI Card’ in Sep’22 and the same has seen strong customer interest. While the cost of funds stood at 5.4% in Q2FY23, the management expects the same to move up to 6.1-6.2% in coming quarters. However, the share of interest earning assets is likely to increase, which will offset the impact on margin.

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We expect the revolver mix to increase gradually as spends mature as the festive season progresses,

while margin may remain under pressure as borrowing cost increases. Growth in spends remains strong and is likely to stay healthy, thus aiding loan growth.