As SBI’s credit card offspring hopes for revival, investors would watch for more clarity (2024)

Investors of SBI Cards and Payment Services Ltd have had a lousy run ever since they picked up the stock during the initial public offering (IPO) earlier this year.

The shares are still trading at roughly 19% lower than the issue price. In fact, the company had listed at a discount of 13% to its issue price on 16 March. But there seems to be a turning point, now that the lockdown has been considerably relaxed. SBI Card’s shares have gained 11% so far this month, a sign that a turnaround narrative was being recognized.

Card spends showed an uptick in May and new card issuances are also looking up. In a business update early this month, the company said daily card spends had reached 60-65% of the levels seen before the lockdown. In media interviews, managing director and chief executive officer Hardayal Prasad said the company was witnessing pent-up demand.

Analysts at Nomura said some partnerships, such as the one with e-commerce firm Amazon, meant SBI Card spends and even acquisition of new customers were better than its peers. “Overall 70-75% of capacity is back for sourcing as the economy re-opens. SBI Cards added 27,000 cards in May, compared with a 250,000-300,000 run-rate per month normally, but this would still be the highest additions in the industry,” Nomura analysts said in a note.

What helps SBI Card manage its balance sheets deftly is the contribution of its pedigree to cost of borrowings. The company is able to borrow from the market at competitive rates given the backing of its parent, State Bank of India.

But business is still just a fraction of what it was before the pandemic. Besides, discretionary spending is unlikely to come back significantly during this year. Therefore, revenues for SBI Card would be under pressure.

SBI Card makes money if Indians shop using its credit cards. In that, nearly half of its income is from interest charged on rolled-over credit card bills. These typically arise when individuals swipe for discretionary spending. With the travel and hospitality industry being the biggest casualty of the lockdown, a quick, meaningful rebound is unlikely. Granted that the company has seen newer categories such as utilities and education supporting spends. Even so, these are not enough to fill the gap left by discretionary spends.

Then there is the effect of the moratorium, which has now been extended to six months. A truer picture of the quality of assets would emerge only after August.

Investors, therefore, would want to wait for a while to see the extent of revival in discretionary spending once the moratorium is lifted to gauge the prospects for the credit card the company.