Second largest card player in India
SBI Cards and Payment Services is the second-largest card business in the country commanding a 20% market share with 11.5 million cards in the first nine months of the fiscal year. Between 2015 and 2020, the total number of SBI Cards has grown at a CAGR of 27%. However, penetration is still low for the company with only 3.8% of debit cardholders owning credit cards as well. “Thus, we believe SBI Cards would maintain its growth momentum by further leveraging its vast customer base. We expect the number of cards to grow at a 27% CAGR over FY21–23E, higher than the industry, enabling further gains in market share,” the report said. SBI Cards also has a vast customer base of its parent, State Bank of India, to ramp up its user base.
The credit card industry in India remains extremely low at merely 3.8% of the total population, against 320% in the United States, 214% in Japan and 42% in China. However, the industry is witnessing growth. Credit card spends have grown 31% CAGR over the financial year 2014-2019, with spends forming 3.6% of GDP in the previous fiscal year.
Emerging from the pandemic
SBI Cards grew its total spend at a 44% CAGR over the fiscal year 2015 to 2020. Although the industry and the company have seen coronavirus impact growth total spend declined ~12% in 9MFY21 for SBI Cards and 22% for the industry. “However, the Credit Card industry has demonstrated a strong resilience as both card spends and new customer acquisitions have reached pre-COVID levels,” the report noted.
With stable NPA levels over the years, SBI Cards is well-positioned to absorb credit shocks as well. “We believe the underlying profitability for the business remains strong, allowing the absorption of asset quality shocks,” analysts at Motilal Oswal said. Gross NPAs are expected to moderate marginally to 4.2% by the financial year 2023, and net NPAs are pegged to decline to 1.2%. SBI Cards carries COVID19 related provision of Rs 11.1 billion, including the restructuring book and proforma GNPA.
Analysts at Motilal Oswal expect SBI Cards to report earnings CAGR of 47% over the next two fiscal years, with superior RoA/RoE of 6.6%/28.4% by 2023. “Asset quality would remain under pressure with a higher proportion of the book under restructuring. Therefore, credit cost is likely to remain elevated in the near term and moderate from FY23,” they said. The brokerage firm has initiated the coverage with a ‘Neutral’ rating and a target price of Rs 1,200 per share, valuing the company at 43x FY23E EPS.
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