Sequential improvement in Q1 suggests investors can swipe for SBI Cards

Unless there is a strong third Covid wave, expect key financial parameters to improve

SBI Cards and Payment Services delivered strong results in Q1FY22. The company is a good indicator of consumer sentiment due to its wide geographical footprint and aggressive open market sourcing. It has the second-highest market share of around 19 per cent in the credit card market.

SBI Cards reported a PAT of Rs 305 crore, down 23 per cent year-on-year from Q1FY21, and up 74 per cent QoQ versus Q4FY21 when it had PAT of Rs 175 crore. The Return on Assets (RoA) was at 4.5 per cent while the Return on Equity (RoE) was close to 19 per cent.

The profitability improved QoQ due to lower provisioning and lower operating expenses. Gross NPAs declined QoQ to 3.9 per cent of assets from 4.9 per cent of assets in Q4 (it was 1.4 per cent in Q1, 2020-21). Net NPAs declined to 0.9 per cent from 1.2 per cent QoQ. The provisions stood at Rs 643 crore and credit cost was at around 10 per cent. There is also a management overlay provision of Rs 258 crore. Restructuring requests have reduced in June 2021.

April 2021 and May 2021 were poor sequentially but June saw a pick-up in activity. Fee income was stable QoQ while interest margins expanded. Asset quality improved, due to higher write-offs. The Provisioning Coverage Ratio (PCR) was around 78 per cent.

Net interest income fell 18.7 per cent YoY, but grew 12 per cent QoQ aided by 1.6 per cent QoQ margin expansion. Income from fees and services was stable QoQ and up 65 per cent YoY on a low base. Total income grew 16 per cent YoY to Rs 2,220 crore.

Cards-in-force (ctive cards) grew 14 per cent YoY to 12 million from 10.6 million. New account sourcing stood at 6.09 lakhs in Q1, doubling YoY and lower than 7.19 lakhs in Q4. The open market channel contributed 62 per cent of new card sourcing and holds 57 per cent of the overall card base. Overall spends grew 74 per cent YoY (8 per cent QoQ decline). Total receivables grew 5 per cent YoY (down 2.7 per cent QoQ) to Rs 244 crore. There was an expansion in yields as more credit was revolved. Receivables per card declined to around Rs 20,000.

Activity has risen in June 2021, and should normalise unless there’s a strong third wave. The improvement in asset quality and the higher yields should support strong net interest margins, given financing costs should not rise much in the current interest rate scenario. The steady growth in active cards, and in the loan book could accelerate. Most analysts expect better RoE/RoA going forward. Valuations in terms of price-to-earnings (44x) are at a 2-year low while the price-to-book (10.5x) is around the median level of the last two years.