BUY

Result Update SBI Cards & Payment Services Ltd.

Target Price
29th Oct 2021 Diversified Financials
1240

Business Momentum Strong, Asset Quality Improves!

(CMP as of Oct 28, 2021)
SBI Cards & Payment Services Ltd. (SBIC) reported strong growth in business momentum with
spends at Rs. 43,560 Cr (+47% YoY, +31% QoQ). It added 953K customers during the quarter, CMP (Rs) 1126
taking the cards-in-force (CIF) to 1.26 Cr (+14% YoY, 5% QoQ). Backed by a strong Upside /Downside (%) 10%
operational performance in H1FY22, SBIC witnessed an improvement in its market share (as
High/Low (Rs) 1165/763
per YTD data till Aug’21) to 19.4% in terms of CIF (vs. 19.1% in FY21) and 19.0% in terms of
spends (vs.19.4% in FY21). We expect the growth momentum to continue supported by Market cap (Cr) 1,06,129
the festive season which would result in market share gains in terms of both CIF and Avg. daily vol. (6m) Shrs. 30,35,030
spends.
No. of shares (Cr) 93.9
The operating performance was dented by lower NIMs as the share of non-interest yielding
transactor balances increased in the receivables mix as well as on account of elevated Opex. Shareholding (%)
The improvement in the asset quality on a sequential basis is encouraging, and was mainly Sep-21 Jun-21 Mar-21
aided by write-offs from the stressed asset pool. Promoter 69.4 69.5 69.4
Key Result Highlights FIIs 13.1 12.5 20.2

 While receivables grew by 12% YoY (ahead of our expectations of 5% YoY growth), the
MFs 6.7 5.4 4.6
share of non-interest yielding transactors increased from 33% in Q1FY22 and 30% in Others 10.9 12.7 5.8
Q2FY21 to 37% in Q2FY22. The share of EMI balances remained broadly stable QoQ at
Financial & Valuations
32% while the share of revolver balances dropped to 27% from 29% QoQ and 34% YoY
Y/E Mar (Rs. Cr) FY21 FY22E FY23E
denting NII/NIMs. NII stood at Rs. 919 Cr (-9% YoY, flat QoQ). NIMs stood at 14.1% vs
14.8% in Q1FY22 and 17% in Q2FY21. NII 3,903 4,236 5,315
 Improved spends and customer additions YoY aided fee income which stood at Rs 1,244 Fee Income 3,908 4,888 6,010
Cr, thus compensating for the lower NII. Elevated Opex impacted PPOP which stood at PBP 4,024 4,682 5,876
Rs 1,058 Cr (+25% YoY and +18% QoQ) vs our estimate of Rs 1,074 Cr. PAT stood at Rs PAT 985 1,709 2,592
345 Cr (+67% YoY, +13% QoQ) vs our expectation of Rs 429 Cr.
EPS (Rs.) 10.5 18.2 27.6
 Asset Quality improved QoQ with GNPA down to 3.36% vs 3.91% in Q1FY22 and
P/E (x) 107.6 62.0 40.8
7.46% (on a proforma basis) in Q2FY21. Restructured book (4% of receivables vs. 9% in
Q4FY21) including RBI RE 2.0 reduced to Rs 1,030 Cr vs Rs 1,376 Cr in Q1FY22. NNPA (%) 1.2% 0.9% 0.8%
ROE (%) 16.9% 24.3% 29.3%
Management Concall Key Takeaways Change in Estimates (%)
FY22E FY23E

Y/E Mar
Business Update: The management has indicated that the momentum on spends and
customer sourcing has remained strong going into Q3FY22E and the growth trend is Spends 5.6 1.5
expected to continue along with receivables growth going ahead. The management NII -1.8 0.2
expects the share of revolver balances to improve as the receivables growth continues. PPOP 1.0 -0.8
 Asset Quality: The fresh restructuring 2.0 was low at Rs 105 Cr taking the cumulative Provisions -2.0 -2.0
restructured book 2.0 to Rs 362 Cr. The total restructured book continues to reduce, aided PAT 4.3 0.1
by write-offs. The management expects the credit costs to taper as the stressed asset pool
continues to reduce. Axis vs Consensus
EPS Estimates 2022E 2023E
Valuation and Recommendation Axis 18.2 27.6
The lower quantum of the restructured book, improving trend in asset quality, and the growth Consensus 19.3 27.2
momentum which has sustained going into Q3FY22E have been key positives for the company.
While improving discretionary, travel and entertainment spends are the primary driving spends Mean Consensus TP (12M) 1,216
growth, the forthcoming festive season will lend further support to the company’s growth. Higher ESG disclosure Score**
spends during the festive period will translate into a healthy receivables growth and a shift
Environmental Disclosure N.A
towards the interest yielding revolvers and EMI balances coupled with stable CoF will aid
margins over the medium to long term. Improving asset quality is likely to keep credit costs in Social Disclosure Score N.A
check, thereby supporting profitability. We believe SBIC has strong moats to support robust Governance Disclosure Score N.A
long-term growth and aid gains in market share moving forward. We maintain our BUY
recommendation on the stock with a revised target price of Rs 1,240/share (45x FY23E Total ESG Disclosure Score N.A
EPS), implying an upside of 10% from CMP. Source: Bloomberg, Scale: 0.1-100
**Note: This score measures the amount of ESG data a company reports
publicly, and does not measure the company's performance on any data point.
Key Financials (Standalone) All scores are based on 2020 disclosures

Relative performance
(Rs. Cr) FY20 FY21 FY22E FY23E
CIF 1.05 1.21 1.39 1.70 190

Spends 1,30,915 1,22,416 1,63,870 2,04,798

140
NII 3,540 3,903 4,236 5,315
Fee Income 3,979 3,908 4,888 6,010 90
Oct-20 Apr-21 Oct-21
PPOP 3,670 4,024 4,682 5,876
PAT 1,245 985 1,709 2,592 SBIC SENSEX
Source: Capitaline, Axis Securities
EPS (Rs.) 13.3 10.5 18.2 27.6
P/E 84.9 107.6 62.0 40.8 Dnyanada Vaidya
NNPA (%) 0.7% 1.2% 0.9% 0.8% Research Analyst
email: dnyanada.vaidya@axissecurities.in
ROE (%) 27.9% 16.9% 24.3% 29.3%
ROA (%) 5.5% 3.8% 5.8% 7.3% Siji Philip
Source: Company, Axis Research Sr. Research Analyst
email: siji.philip@axissecurities.in

1
Additional Concall Highlights
Business Update (Contd…)

 Lag in Spends market share: While the market share in terms of CIF and transactions remain strong, the company has lost
market share in terms of spends in H1FY22 vs FY21. The management believes that this is on account of lower corporate spends.
The management is cautious in its approach towards corporate spends as these are relatively higher risk and lower margin spends.

 Spends improve across all categories barring travel and entertainment: Online spends improved to 53.7% in Q2FY22 vs
51.9% in FY21. Spends across categories have picked up and are above pre-COVID levels (Dec’19-Feb’20 period). However,
spends on travel and entertainment continue to remain below pre-COVID levels. Travel and entertainment spends continue to
remain at 65-70% of pre-COVID levels and will pick up only with international and business travel picks-up. We revise our spends
growth estimates upwards by 5.6% in FY22E and 1.5% in FY23E.

 Efforts towards building a sticky customer base: In Q2FY22, 41% of the new customers sourced were in the ‘Under 30’ age
category. The company aims to target this category of customers as they are likely to stay with SBIC for a longer tenure, thus
enabling SBIC to build a fairly sticky customer base. As this category of customers matures and ages, an increase in the income
and improving lifestyle will aid spends growth for SBIC. The younger customers are also likely to boost online spends going ahead.

 NIMs likely to remain under pressure in the near term: NIMs remained under pressure primarily due to unfavourable
receivables mix. As the receivable grow with improving spends, the management expects the ‘Transactor’, ‘Revolver’ and ‘EMI’
balances to contribute equally to the receivables mix, thus aiding interest income. The management has indicated that NIM
expansion would be primarily aided by yield improvement rather than CoF contraction. We expect NIMs to remain under pressure
in the near term and improve FY23E onwards. We trim our NII estimates for FY22E by 5% assuming a higher share of
Transactor balances and keep our estimates largely unchanged for FY23E expecting the share of the revolver and EMI
balances to improve.

 Investment in the franchise to keep C-I elevated: As the company looks to aggressively source new customers and aid spends
and to counter increased competition the costs in the near term are likely to stay elevated as SBIC invests in the franchise.
Additionally, higher spending due to the festive season would result in higher Opex growth. We expect C-I Ratio to range
between 54-55% over FY22-23E.

Asset Quality

 Asset Quality improvement led by write-offs: GNPA improved to 3.36% against 3.9% in Q1FY22 and 7.46% (on a proforma
basis) in Q2FY21. Improvement in headline asset quality was aided by a write-off mainly from the RBI RE book (~Rs 640 Cr)

 Credit Costs to taper off as stressed asset pool decreases: Provisions stood at Rs 594 Cr (including Rs 231 Cr of the
management overlay). We expect the credit costs to taper in H2FY22E given the improvement in stressed asset pool and
expectation of lower slippages. The quantum of restructured loans 2.0 is within manageable limits. SBIC holds a PCR of 65% for
restructured loans which are 30-90dpd and 100% PCR against NPAs in the restructured pool.

 Credit filters tightened: The management indicated that the credit filters are tightened and hence the quality of the book sourced
over the past 18 months is likely to exhibit healthy asset quality. The management is confident of arresting slippages going ahead
and expect bucket-wise improvement going ahead.

2
Change in Estimates
New Old Change (%)

FY22E FY23E FY22E FY23E FY22E FY23E

Spends 1,63,870 2,04,798 1,55,194 2,01,715 5.6 1.5

NII 4,236 5,315 4,312 5,305 -1.8 0.2

PBP 4,682 5,876 4,637 5,923 1.0 -0.8

Provisions 2,399 2,412 2,448 2,462 -2.0 -2.0

PAT 1,709 2,592 1,638 2,590 4.3 0.1

Source: Company, Axis Research

Result Update (Standalone)

Q2FY22 Q2FY21 YoY % Q1FY22 QoQ %
CIF 1.26 1.10 14.5 1.20 5.0
Spends 43,560 29,590 47.2 33260.0 31.0
Avg. Spend per card 36,901 27,385 34.8 29430.9 25.4
Market share – CIF* 19.4% 18.7% 70 bps 19.1% 30 bps
Market share – Spends* 19.0% 20.5% -150 bps 19.1% -10 bps

Interest Income 1,173.2 1,275.4 -8.0 1,153.5 1.7

Interest Expense 254.1 264.2 -3.8 229.0 11.0
Net Interest Income 919.0 1,011.2 -9.1 924.4 -0.6
Fee Income 1,189.3 1,019.3 16.7 1,098.7 8.2
Other Income 278.3 218.0 27.6 198.8 40.0
Total Income 2,386.5 2,248.6 6.1 2,221.9 7.4
Operating Expenses 1,383.3 1,108.6 24.8 1,168.0 18.4
Staff Cost 114.7 122.2 -6.1 116.4 -1.4
Cost-Income Ratio (%) 56.7% 49.3% 52.6%
Pre provision profit 1,058.0 1,139.9 -7.2 1,054.0 0.4
Provisions 593.9 861.7 -31.1 643.7 -7.7
PBT 464.1 278.2 66.8 410.3 13.1
Taxes 119.2 72.0 65.5 105.7 12.8
PAT 344.9 206.1 67.3 304.6 13.2

Asset Quality
Gross NPA (%) 3.4% 4.3% -90 bps 3.9% -60 bps
Net NPA (%) 0.9% 1.4% -50 bps 0.9% 0 bps
PCR (%) 73.7% 65.6% 77.0%

Spread Analysis
Yields 18.0% 21.4% -336bps 18.5% -50 bps
CoF 5.5% 6.6% -108 bps 5.2% 30 bps
NIM % 14.1% 17.0% -286 bps 14.8% -70 bps
Source: Company, Axis Securities *Market share is based on Aug’21 data

3
Financials (Standalone)
Operational Parameters (Rs Cr)
Y/E March FY20 FY21 FY22E FY23E
Cards-in-Force (CIF) 1.05 1.18 1.39 1.70
Change 28% 12% 18% 22%
Total Spends 1,30,915 1,22,416 1,63,870 2,04,798

Change 27% -6% 27% 25%

Avg. Spend per Card 1,39,131 1,09,557 1,27,407 1,32,507
Source: Company, Axis Securities

Profit & Loss (Rs Cr)

Y/E March FY20 FY21 FY22E FY23E
Interest Income 4,841 4,947 5,321 6,611
Interest Expenses 1,301 1,043 1,085 1,296
Net Interest Income 3,540 3,903 4,236 5,315
Change 38% 10% 9% 25%
Fee Income 3,979 3,908 4,888 6,010
Non-Interest Income 932 859 1,152 1,456
Total Income 8,451 8,670 10,277 12,781
Operating Expenses 4,781 4,646 5,594 6,905
Change 26% -3% 20% 23%
Pre-Provision Profits 3,670 4,024 4,682 5,876
Provisions 1,940 2,700 2,399 2,412
Change 69% 39% -11% 1%
PBT 1,730 1,324 2,284 3,464
Tax 485 339 575 872
Profit After Tax 1,245 985 1,709 2,592
Source: Company, Axis Securities

Balance Sheet (Rs Cr)

Y/E March FY20 FY21 FY22E FY23E
Equity Share Capital 939 941 941 941
Reserves & Surplus 4,402 5,362 6,814 9,017
Net Worth 5,341 6,302 7,754 9,958
YoY Growth % 49% 18% 23% 28%
Borrowings 17,365 18,068 21,260 26,196
Other Liabilities 2,597 2,643 2,854 3,197
Total Liabilities 25,303 27,013 31,869 39,351

Cash & Bank balances 676 718 793 868

Investments 1 10 10 10
Loans 22,812 23,459 28,010 35,168
YoY Growth % 27% 3% 19% 26%
Fixed Assets & Others 1,814 2,826 3,056 3,305
Total Assets 25,303 27,013 31,869 39,351
Source: Company, Axis Securities

4
Ratio Analysis (%)
Y/E March FY20 FY21 FY22E FY23E
ASSET QUALITY
GNPA 484 1,254 887 926
NNPA 160 277 266 278
GNPA Ratio 2.0% 5.0% 3.0% 2.5%
NNPA Ratio 0.7% 1.2% 0.9% 0.8%
PCR 67% 78% 70% 70%

SPREAD ANALYSIS
Avg. Yield on Advances 21.7% 20.1% 19.4% 19.7%
Avg. Cost of Borrowings 7.8% 6.1% 5.7% 5.7%
Spread 13.9% 14.0% 13.7% 14.0%
Net Interest Margin 15.8% 15.9% 15.5% 15.9%

PROFITABILITY RATIOS
RoE 27.9% 16.9% 24.3% 29.3%
RoA 5.5% 3.8% 5.8% 7.3%
Cost to Income 56.6% 53.6% 54.4% 54.0%
CAR 22.4% 24.8% 24.8% 24.6%
Tier 1 17.7% 20.9% 21.1% 21.2%

VALUATION RATIOS
EPS 13.3 10.5 18.2 27.6
Change 28% -21% 74% 52%
Price-Earnings (x) 84.9 107.6 62.0 40.8
BVPS 56.9 67.0 82.4 105.9
Change 33% 18% 23% 28%
Price-BV (x) 19.8 16.8 13.7 10.6
Adj. BVPS 55.2 64.1 79.6 102.9
Change 34% 16% 24% 29%
Price-ABV (x) 20.4 17.6 14.1 10.9
Dividend Per Share 1.0 - 2.7 4.1
Dividend Yield (%) 0.1% 0.0% 0.2% 0.4%

ROAA TREE
Net Interest Income 15.6% 14.9% 14.4% 14.9%
Non-Interest Income 21.6% 18.2% 20.5% 21.0%
Operating Cost 21.0% 17.8% 19.0% 19.4%
Provisions 8.5% 10.3% 8.1% 6.8%
ROAA 5.5% 3.8% 5.8% 7.3%
Leverage (x) 5.1 4.5 4.2 4.0
ROAE 27.9% 16.9% 24.3% 29.3%
Source: Company, Axis Securities

5
 SBI Cards Price Chart and Recommendation History

(Rs)

Date Reco TP Research

29-Sep-20 BUY 1,010 Initiating Coverage
23-Oct-20 HOLD 925 Result Update
22-Jan-21 BUY 1,100 Result Update
27-Apr-21 BUY 1,045 Result Update
26-Jul-21 BUY 1,100 Result Update
24-Sep-21 BUY 1,210 Festive Unlock Picks
06-Oct-21 BUY 1,210 AAA
29-Oct-21 BUY 1,240 Result Update

Source: Axis Securities

6
About the analyst

Analyst: Dnyanada Vaidya

Contact Details: dnyanada.vaidya@axissecurites.in

Sector: BFSI

Analyst Bio: Dnyanada Vaidya is MMS (Finance) with over 4 years of research experience in the
Banking/NBFC sector.

Disclosures:

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
1. Axis Securities Ltd. (ASL) is a SEBI Registered Research Analyst having registration no. INH000000297. ASL, the Research Entity (RE) as defined in the
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7
 DEFINITION OF RATINGS

Ratings Expected absolute returns over 12-18 months

BUY More than 10%

HOLD Between 10% and -10%

SELL Less than -10%

NOT RATED We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation

UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events

NO STANCE We do not have any forward looking estimates, valuation or recommendation for the stock

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