Why SBI Cards is banking on a festive boost

So far in FY23, SBI Cards’ shares have risen 7%. Photo: Mint
So far in FY23, SBI Cards’ shares have risen 7%. Photo: Mint


  • Investors would do well to evaluate whether the profitable segments such as revolver mix are rebounding.

SBI Cards and Payment Services Ltd’s credit card spends in August rose by 1.2% month-on-month (m-o-m), according to the latest data from the Reserve Bank of India (RBI). This comes at a time the industry’s credit card spends have dropped by 3% m-o-m.

Even so, credit card spends are expected to improve for the industry for September and October led by the festive season. This would benefit SBI Cards too, as higher spends translates into higher receivables. The market share of SBI Cards’ credit card spends, which had dropped m-o-m in June and July, rose sequentially in August.

“We believe the recently launched Cashback card will help SBI Cards witness strong traction on spends and help further improve its market share, especially with SBI Cards having an exclusive partnership with Amazon for the festive season sale," said a report by Axis Securities dated 30 September.

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Investors would also do well to follow the ticket size of spends to evaluate whether the profitable segments such as revolver mix are rebounding. Credit card companies earn more interest from revolvers who are customers that carry balances over from one month to the next and pay interest on the revolving balances. “Without the revolver rates improving, SBI Cards earns only the basic merchant discount rate (MDR) on their transactor balances," said Krishnan ASV, senior vice president, institutional research, BFSI, HDFC Securities. Transactors are cardholders who pay off their outstanding fully every month and, thus, avoid paying any interest on that.

In the June quarter (Q1FY23), transactor share in SBI Cards’ overall receivables stood at 38%, while the revolver share was 26%, after bottoming out in Q4FY22 at 25%. The revolver mix necessitates closer tracking when Q2 numbers are announced.

So far in FY23, SBI Cards’ shares have risen 7%. The stock now trades at 27 times estimated earnings of FY24, according to data from Bloomberg.

Analysts pointed out that the stock suffers from the RBI overhang on MDR and intense competition. “In the near term, one has to look out for RBI’s stance on MDR rates. In SBI Cards’ fee income, a significant proportion is contributed by MDR. If a cap on MDR comes through we think SBI card will have to compensate with a reduction in the interest free periods, higher subscription fees etc. to sustain the return on asset," said Abhinesh Vijayaraj, director, equity research, Spark Capital Advisors (India).

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