SBI Card’s Q4 reflects a slowdown; second wave could make it worse
PremiumInvestors should note that the steady rise in card spends every quarter has lost its footing in the March quarter
SBI Cards and Payment Services Ltd’s fourth-quarter performance showed telltale signs of a slowdown in business growth and pressure on asset quality. Credit card spends dropped sequentially, albeit the fall was marginal. Both retail and corporate spends showed a decline, indicating that there is a broad-based loss of momentum.
Total card spends stood at ₹35,943 crore for the March quarter, registering a 11% growth from the year-ago period. This growth rate is far lower than the pre-pandemic trend, a reflection of covid’s impact on the firm. But what investors should note is that the steady improvement in spends every quarter has lost its footing in the March quarter.
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1 min read . 26 Apr 2021This has come even as arch rival HDFC Bank Ltd has not been able to add credit card customers due to a regulatory ban. Perhaps, SBI Card has not been able to take full advantage of this.
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Another factor behind lower spends could also be the fact that the company has had to rely on spending on essentials by customers. Its tie-ups with e-commerce platforms, railways and other utilities have been focused towards this.
However, as analysts at Motilal Oswal Financial Services Ltd pointed out in a 1 March note, SBI Card has a large proportion of premium credit cards that are targeted for discretionary spending.
The impact on discretionary spends is stark. Such spends that include travel, hotels, airlines and entertainment saw a 57% drop in FY21, while spends towards apparel, jewellery, furnishing and health dipped 5%.
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2 min read . 26 Apr 2021On the contrary, spends on essentials grew 18%. Indians couldn’t spend in April and May last year because of the lockdown and didn’t want to spend in the rest of the months due to benign economic outlook. Further, even after a year, discretionary spending remains elusive.
Given that spends towards essentials are small in size than discretionary, the second wave of the pandemic poses significant risks to growth for SBI Card. What’s more, the company has sourced 38% of its new customers from tier-1 cities, which have been hit hard in the second wave and are facing stricter restrictions on activity.
Another factor for investors to be wary is asset quality. The company saw its gross bad loans rise to 4.99% of its total book from 4.51% in the previous quarter.
Impairment and losses have risen sequentially and the total restructured book stood at ₹1,908 crore. In all probability, the provision coverage ratio improved substantially because of large write-offs.
The upshot is that the second covid wave threatens both growth and asset quality for the company. The pressure on valuations, thus, may remain.
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