We hosted SBI Cards’ management in our high conviction ideas conference and the takeaways were reassuring on concurrent and expected trends in card addition/mix, spend growth/mix, revolvers’ share, competitive landscape and credit cost. The company is confident about maintaining the card sourcing run-rate demonstrated in the past two quarters, while not chasing market share at the cost of risk or profitability.
Higher acquisitions from tier-3 and beyond locations and of self-employed customers is mainly through the SBI channel. This would drive revolvers’ share recovery along with the consistent increase of discretionary spends.
We estimate 20-22 per cent CAGR in CIF and Receivables over FY22-24. Despite modelling 25-bp MDR reduction (partial recoup through opex), we estimate RoA/RoE to be 5.5-6 per cent/24-26 per cent, which was the pre-pandemic metric (adjusted for capital base).
We believe that the stock price represents overstretched concerns on MDR reduction and lack of flexibility to recoup it; structural pressure on cost-income/profitability from increased competitive intensity; impact on growth from rising scale of the new-age card companies and BNPL. Being the only listed pure-play credit card issuer with significantly higher profitability than banks and NBFCs (in good times as well as bad times), SBI Cards would continue to command a premium valuation.