SBI Cards trades higher for fifth straight day; stock up 11% in a week

Shares of SBI Cards and Payment Services (SBI Cards) were trading higher for the fifth straight day, up 4 per cent at Rs 1,076.35 on the BSE in intra-day trade on Friday. The stock has surged 11 per cent in the past one week. In comparison, the S&P BSE Sensex has risen 3 per cent during the week. The stock was trading at its highest level since March 9, 2021. It hit a record high of Rs 1,149 on February 24.

SBI Cards is the leading issuer of credit cards in India. The company offers wide range of value-added payment. Rapid growth in digital payments and large customer base from parent may drive growth in credit cards over long-term.

On March 17, US-based private equity firm Carlyle Group had sold 4.3 per cent stake (40 million shares) in SBI Cards and Payment Services via block deals. The shares sold at Rs 986 apiece, fetching Carlyle Rs 3,944 crore. Following the share sale, Carlyle's holding in SBI Cards has dropped to 11.61 per cent from 15.86 per cent.

Most of these shares were bought by the foreign portfolio investors (FPIs), as their holding in SBI Cards increased to 8.62 per cent in March 2021 quarter from 5.84 per cent at the end of December 2020 quarter.

During CLSA’s NBFC (non-banking financial company) Access Day 2021, SBI Card’s top management said that the Q4FY21 spending recovered to pre-Covid levels with a higher share of online spending (more than 50 per cent), which management expects to continue.

“While management expects wave-2 to hinder near-term collections, FY21 originations quality improved due to additional credit filters and a higher share of bank sourcing, leading to share of revolvers dropping and expected overall asset-quality improvement. Management believes growing share of prepaid payment instruments (PPIs)/wallets is complimentary, that high competitive intensity from peer card issuers is seasonal, and that SBI Cards has maintained its cards/spending share,” the brokerage firm said in a note.

Rapid growth in digital payments and large customer base from its parent may drive growth in credit cards over long-term. Credit consumption is expected to remain low during the crisis. However the company is well positioned to capitalize on the opportunities once the market recovers, according to analyst at Geojit Financial Services.

“Going forward, with adequate provisioning (77 per cent+ PCR/6 per cent+ECL), incremental customer sourcing from banca channel and pick-up in POS and online spends (52 per cent of total) both supported by digital channels should restrict the impact of second wave. However, Management conservatism and spillover of second wave impact to H1FY22 prompt us to tweak NII lower (20 per cent/12 than previous estimates) and provisions higher (7 per cent/5 per cent vs earlier 4 per cent) over FY22- 23,” analysts at Prabhudas Lilladher said in March quarter results update.