Highlights:
- SBI Card investors happy as company shows potential
- SBI Card has shown a 14% growth in its net profits
- The company’s share also gained 21% in July and moved over IPO issued price
Investors who chose to buy shares of SBI Cards and Payment Services Limited at the Initial Public Offering (IPO) back in March now have reason to rejoice.
Not only the shares of the company gained 21% in July to finally trade above the IPO issue price but also the firm has given more than enough reasons to back this positivity.
The nation’s unique standalone card and payments company has reported a 14% growth in its net profit along with a 35% increase in interest income.
The rise of over 20% in SBI Cards has shown that SBI Cards is now getting new customers at a pace which is close to pre-pandemic levels. As the economy unlocked, citizens have started swiping credit cards once more with gusto and more are using SBI Cards.
However, it is being said that the nature of spending has changed with optional spend still suffering while the essential and utilities have gained traction. Option or discretionary spend includes hotel expenses, travel and even airlines which have taken a nosedive of 78% online and 85% in the Point-of-Sale category.
As the utilities and essential tend to be smaller in size and easy on the pocket, the average spends per card is still far lower than what the company saw in the previous quarter of FY.
For the cards company, this means that a healthy and quick recovery is still far from becoming a reality. However, being that said, the sustained improvement in the spending in each month of the June quarter shows huge promise for the company’s growth prospects.
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This means that in terms of a growth story returning, investors of SBI Cards can finally see a light at the end of the long and dark tunnel.
Additionally, the moratorium levels have reduced every month and stands at mere 1,50,000 accounts in June from 12,00,000 in April. While the moratorium has helped SBI Cards, as postponed payments earn interest to the company, the fall in the level improves the outlook on “delinquencies”.
On the outlook on the asset quality, it is, however, not very clear and exudes caution. SBI Cards has seen the share of revolver credit in its overall card receivables rising by 5%, from 40% to 45% in the March quarter.
Revolver credit is where any borrower pays the minimum amount – mostly 5% of the outstanding – and postpones the payment of the remaining amount over to the next cycle.
Revolvers are mostly considered high risk.
Without a grain of doubt, the management in an analyst call said that all the revolvers are not high risk as there are some who pay a higher portion of their outstanding.
The management said that there will be a clear picture of the asset quality but it cannot emerge until the moratorium period concludes on 31st August 2020. As for now, the firm has garnered Rs. 489 crore provisions towards risks from the ongoing pandemic.
The firm, SBI Cards, has managed to locate growth even when the industry is looking at low ticket sizes and high volume spends. However, the sharp growth lever of the discretionary spendings is still far from reach.
