Markets
SBI Cards’ spends in March promising; rising competition a worry
Summary
Data from the Reserve Bank of India (RBI) shows spends on SBI Cards rose by 12% sequentially and 21% year-on-year in March.
Industry credit card spends scaled a record high of ₹1.4 trillion in March, rising sequentially and rebounding from a decline in February. The trend is heartening for SBI Cards and Payment Services Ltd. Data from the Reserve Bank of India (RBI) shows spends on SBI Cards rose by 12% sequentially and 21% year-on-year in March. Jefferies India analysts noted that this was broadly in line with their estimates. “Spend share dipped 63bps month-on-month led by lower online spends. It is unclear if the fall in spend share is due to lower retail or corporate spends," they wrote in a 17 April report.
While SBI Cards reported a healthy growth in spends, the pace still lags peers. In March, ICICI Bank clocked a sequential growth of 21% in credit card spends, followed by Kotak Mahindra Bank and HDFC Bank at 18% and 15%, respectively. Further, SBI Cards’ market share was steady month-on-month at 20% in March.
Meanwhile, shares of SBI Cards have fallen by 5% over the past one year. A main worry for the stock has been a slowdown in the revolver mix. When customers ‘revolve’ their payment to the next billing period instead of paying it all upfront, it benefits the company. With a slowdown in this segment, SBI Cards’ net interest margin (NIM) has come under pressure. As such, higher cost of funds is expected to add to the pressure on NIMs ahead. In FY24, investors should watch if NIMs bottom out. “Margin pressure should peak out in H1FY24 with rates nearing a peak and revolver mix near a bottom," said Jefferies. Additionally, any change regarding RBI’s stance on merchant discount rate acts as an overhang on the stock. Though the impact will be felt across all card issuers, the stock of SBI Cards has fallen 25% since its 52-week high in August last year. Shweta Daptardar, analyst at Elara Securities (India) points out, “Time correction, the pandemic, increased competition, and change in consumer behaviour & regulations have been captured into its valuation wherein the six-year median return on equity of 28% and P/ABV (price to adjusted book value) of 11-12x fell to 23% and 8x in FY22, respectively."
While valuations may offer comfort, competition is a worry. “Rising competition from various products such as buy now, pay later (BNPL), EMI cards, is alarming to the credit cards segment. The rate of adoption of BNPL and EMI cards in the last four years is significantly higher compared to credit cards," said Kaitav Shah, BFSI research analyst at Anand Rathi Institutional Equities.
