Credit cards - Covid 2.0 impact relatively lower; June witnesses recovery - ICICI Securities

The payment snapshot available for FY22-TD indicates the impact of covid second wave has been significantly less than the first. This is true for all modes of payments including credit cards (CC). Key supporting data include (1) higher CC spends in April'21 than H1FY21 (on monthly basis) (2) sharp recovery in spends trends in June'21 till date (3) 162% higher spend per card for aggregate system in April'21 (over Apr'20).

- Credit card spends totalling Rs592bn in Apr'21 was better than each month in Apr-Sep'20. While the impact of the second wave will be higher in May'21 vs Apr'21, one can expect recovery in Jun'21 considering: a) UPI payments in May'21 have been similar to Apr'21; b) online sales are likely to recover and we are witnessing progressive normalisation in Jun'21. Credit card segment has also outperformed debit cards considering that the ratio of credit card to debit card in terms of spend has remained at >1 since Jan'21. This ratio had slipped below 1 post Covid 1.0 between Apr-Dec'20. As a spends indicator in one of the worst impacted sectors, average daily fliers crossed 100k in June'21 from a low of 62.5k in May'21 but there is long way to go back to 257k/362k levels seen in Q4FY21/Q4FY20.

- Data trends from the card network indicate sharp recovery in June21. The trends of spends in June till date indicate ~18% jump compared to May'21 (31% if we consider third week of Jun'21 over May'21). This also puts June21 spend trend at a higher level compared to all months of FY21 except March (seasonally strong).

- Relative positioning of SBI Cards remains strong: SBI Card spends / CIF market share stood at 18.7%/19% in Apr'21 (19.6%/18% in Apr'20, 18.3%/19% in Mar'21).

- No major change in spend per transaction, which remained at Rs3,539 for SBI Cards in Apr'21 vs Rs3,514 in FY21 and Rs2,780 in Apr'20.

- Average spend per card 139% higher YoY in Apr'21 at Rs9,289 for SBI Cards.

- Trying to assess the Q1FY22 card spend from Apr'21 numbers - an empirical approach. Based on trends of settlement data of card networks, we estimate Rs560bn/650bn for May/June21. This translates into total industry credit card spend estimate of Rs1.8trn in Q1FY22. Assuming 19% market share for SBI cards, Q1FY22 spends for SBI card is estimated at Rs340bn. This is in line with our FY22 annual spend estimate for SBI Cards (Rs1.57trn) assuming 15% YoY growth for remaining three quarters of FY22.

- We remain positive on SBI Cards. Overall estimated impact of covid second wave is significantly lower than the first on account of better preparedness to manage all business functions digitally and rolling nature of lockdowns. RBI Re book continues to run off on expected lines and overall restructuring quantum is expected to be much lower in Covid 2.0. SBI Cards is now better prepared to make a calibrated journey post the experience in FY21. We remain positive on the company's long-term fundamentals (PPOP / PBT grew 38% / 23% respectively between FY17-FY21). Maintain BUY with a target price of Rs1,205 (unchanged) based on 40x FY23E EPS of Rs30.

- UPI continues to outperform. UPI's market share has increased from 8.1% in Jan'20 to 11.7% in Mar'21 and 15.5% in Apr'21. The ratio of UPI to credit card has continued to gradually increase from 3.24x in Jan'20 to 6.97x in Mar'21 and 8.34% in Apr'21. Within UPI, the value market shares of Google Pay and PhonePe remain at 37.5% and 47% respectively as of May'21. Ticket size of overall UPI payments increased to Rs1,932 in May'21 compared to Rs1,837 in FY21 and Rs1,869 in Apr'21. Within UPI payments, ticket size of Peer to Merchant segment increased to Rs759 in May'21 vs Rs669in FY21 and Rs686 in Apr'21.

Source : Equity Bulls

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