Card industry has reached pre-COVID levels now – SBI Cards

Update on the Indian Equity Market:

On Tuesday, NIFTY closed at 14,814 (+0.5%). Top gainers in NIFTY50 were Shree Cement (+4.7%), Ultratech Cement (+2.7%), and Divi’s Lab (+2.6 %). The top losers were Hindalco (-2.4%), ONGC (-2.1%), and Powergrid (-2.0%). The top sectoral gainers were PSU BANK (+2.9%), PVT BANK (+1.7%), and BANK (+1.7%) while the sectoral losers were METAL (-0.6%), IT (-0.4%) and MEDIA (-0.3%).
Excerpts of an interview with Mr. Rama Mohan Rao Amara, MD & CEO, SBI Cards (SBICARD) with CNBC -TV18 dated 22nd March 2021

• The cards industry reached pre-COVID levels in November 2020, while the SBI Card reached pre-COVID levels in October 2020 and the share of online spending has steadily increased for the company and he expects the trend to continue.
• The only positive outcome of COVID-19 is an increase in digital means by everyone. The share of online spending has increased. 
• It used to be around 44 percent in SBICARD. That has steadily increased to 53 percent, almost a 900 basis points increase. 
• Some of the segments like travel, entertainment, restaurants, etc. continue to be depressed, but other segments did record good growth. 
• The way people chose online means to spend like utilities, groceries, insurance payments, etc. they have come handsomely. So this secular trend of online spending is likely to continue.
• Q4 spends are lower than Q3. Q3 spends were elevated as it was the festive season. 
• The credit cost for the short term will remain elevated, like 3QFY21. They made Rs 11,000 mn of management overlay which is much beyond the Rs 9,400 mn of base provisioning. 
• They were very prudent in terms of categorizing the 30-day delinquency RBI RE on par with NPA and making stage 3 provisioning. So this is a journey and this has been the focus area for the company. So, the credit cost trajectory will be co-related to the decline in the contribution of RBI RE

Asset Multiplier comments:

• The credit card market in India is smaller compared to its counterpart debit card however, the market is anticipated to witness significant growth in the coming years. With the increasing popularity of credit cards, banks are focusing on urban and semi-urban markets in order to increase their share in the market.

• For SBI cards, the Credit Card industry has demonstrated a strong resilience as both card spends and new customer acquisitions have reached pre-COVID levels.
• Increasing preference of consumers towards cashless transactions is likely to give a good growth boost to SBI cards.

Consensus Estimate: (Source: market screener and investing.com websites)

• The closing price of SBICARD was ₹ 958/- as of 23-March-2021.  It traded at 81x/ 45x/ 33x the consensus earnings estimate of ₹ 11.9/ 21.1/ 28.7 for FY21E/22E/23E respectively.
• The consensus price target is ₹ 1,139/- which trades at 40x the earnings estimate for FY23E of ₹ 28.7/-

 Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”