BackSBI Cards sees light at the end of the tunnel as growth prospects brighten
The 20% rise in cards in force showed that SBI Cards is getting new customers at a pace close to pre-covid levels
PremiumInvestors who picked up shares of SBI Cards and Payment Services Ltd during its initial public offer (IPO) in March finally have reason to rejoice.
Not only have the shares gained a massive 21% this month to cross the IPO issue price, the company also gave enough reasons to back this optimism.
The unique standalone card and payments company reported a 14% growth in its net profit and a 35% increase in interest income.
The 20% rise in cards in force showed that SBI Cards is getting new customers at a pace close to pre-pandemic levels. Essentially, as the economy unlocked, Indians are swiping credit cards again with gusto and more are using SBI Cards.
To be sure, the nature of the spend has changed with discretionary spend still languishing, while essentials and utilities gained more traction. Discretionary spends such as travel, hotels and airlines plummeted 78% online and 85% in the point-of-sale category. Since utilities and essentials tend to be of small ticket size, the average spends per card are still far lower than in previous quarters.
For a cards company, this means that a sharp recovery in growth is still far away. That said, the sustained improvement in spends in each month of the June quarter augurs well for the company’s growth prospects.
Therefore, in terms of a growth story returning, investors of SBI Cards can finally see light at the end of the tunnel.
Further, the moratorium level has reduced every month to just 150,000 accounts in June from 1.2 million in April. While the moratorium has helped SBI Cards, as postponed payments earn interest, the fall in the level improves the outlook on delinquencies.
But the outlook on asset quality is not very clear and it pays to be cautious here. SBI Cards saw the share of revolver credit in its overall card receivables rise to 45% from 40% in March quarter.
Revolver credit is where a borrower pays the minimum amount, mostly 5% of the outstanding, and postpones the payment of the remaining amount over to the next cycle. Revolvers are considered high-risk.
To be sure, the management in an analyst call said that all revolvers are not high-risk, as some pay a higher portion of their outstanding. The management has said that a true picture of asset quality cannot emerge until the moratorium period concludes in August. For now, the company has made ₹489 crore provisions towards risks from the pandemic.
SBI Cards has managed to find growth in low ticket size and high volume spends. But the big growth lever of discretionary spends is still away.
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