Motilal Oswal says SBI Cards reported a weak quarter as slower growth in receivables/spending and elevated provisioning impacted earnings. However, Motilal Oswal expects spends to pick up as retail spends have exceeded pre-COVID levels and corporate spends are also back at pre-COVID levels. Gradual decline in the RBI RE (Resolution Plan) book and an increase in the revolver mix, coupled with controlled funding cost, would support margins over the medium term. Motilal Oswal says it estimates a loan book / earnings CAGR of 24%/60% over FY21–23E, as a strong PCR of 78%, coupled with additional management overlay provisions of Rs 2.97 bn, should keep credit costs in check. Motilal Oswal says its estimates show RoA/RoE is set to improve to 6.8%/28% in FY23E. It Maintains Buy rating, with unchanged price target of Rs 1200.

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SBI Cards and Payment Services reported a weak quarter, with sequential decline in receivables/spending. On the other hand, margins declined 130bp, affected by interest income. Fee income stood stable QoQ (+16% YoY) as spends declined 5% QoQ (+11% YoY). However, decline in opex led to stable PPoP. Retail spends remained higher v/s pre-COVID levels (113%), while corporate spends reached pre-COVID levels. The GNPA ratio increased on higher NPAs from the RBI RE book, comprising 50% of the total slippages. However, it has provided 80% on the delinquent RBI RE book; this, along with a strong PCR of 78% and additional management overlay provisions of INR2.97b, should keep credit costs in check, says Motilal Oswal.

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Motilal Oswal added that retail spends remained higher than pre-COVID levels (113%), while corporate spends reached pre-COVID levels – on the back of new use cases making up for the loss in travel spends. Online retail spends form 52% of the total retail spends. Total receivables grew 4% YoY (2.5% QoQ decline) to Rs 251.1 bn. The receivables mix indicated a marginal increase in the number of transactors and decline in revolvers – resulting in moderation in yields and an impact on the margins. Receivables per card continued to decline, reaching 21k in 4Q. The GNPA ratio increased to 4.96% (v/s proforma 4.51% in Dec’20), while the NNPA ratio declined to 1.15% (v/s 1.58% in 3QFY21).

Motilal Oswal says spends across categories, barring Travel and Entertainment, have reached preCOVID levels. Corporate spends have also reached pre-COVID levels, while corporate travel remains impacted.