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MOSL: SBI CARDS AND PAYMENT SERVICES (Buy)-Steady performance; asset quality improves sequentially

SBI CARDS AND PAYMENT SERVICES: Steady performance; asset quality improves sequentially

(SBICARD IN, Mkt Cap USD12.1b, CMP INR957, TP INR1200, 25% Upside, Buy)

 

• SBICARD reported a steady 1QFY22, with a sharp beat in earnings, supported by lower provisions, as operating performance came in line. Overall spends/receivables witnessed a sequential decline due to the lockdown during Apr-May’21, while showing a gradual improvement from Jun’21 onwards. Margin too witnessed an expansion of ~160bp, led by an improving loan mix, while fee income stood largely stable QoQ.
• Asset quality ratios saw a significant improvement, led by higher write-offs, while the RBI RE book declined to INR13.8b (6% of loans v/s 8% in 4QFY21). It has provided a further 65%/100% on 30-90/90 days delinquent RBI RE book. This, along with a strong PCR (~78%) and management overlay provisions of INR2.58b, should keep credit cost under control. We increase our FY22E/FY23E estimates by 11%/19%. We maintain our Buy rating.

 Improving revenue profile; margin expands 160bp QoQ to 14.8%

• SBICARD reported a PAT of INR3b (-23% YoY/+74% QoQ), supported by lower opex and provisions, which declined by 9% each QoQ. Provisions in 1QFY22 stood at INR6.4b. Despite elevated credit cost of ~10%, it reported a robust RoA/RoE of 4.5%/18.7%.
• NII fell 18.7% YoY, but grew 12% QoQ aided by a 160bp QoQ margin expansion to 14.8%. Income from fees and services was stable QoQ at INR11b (+65% YoY on a low base). Total income grew 16% YoY to INR22.2b, while controlled opex resulted in a PPOP of INR10.5b (in line).
• Cards in force grew 14% YoY to ~12m. New account sourcing stood at 609k in 1QFY22 (+111% YoY) v/s 719k in 4QFY21. The open market channel contributed ~62% of new card sourcing and is ~57% of its overall card base.