SBI Cards Q4 FY20 Results Analysis

SBI Cards Q4 FY20 Financial Highlights

Introduction

SBI Cards Q4 FY20 Net Profit declined by almost 66% YoY to Rs.83.5 Cr on COVID provisions and rise in expenses. The company had posted Net Profit of Rs.248.7 Cr in Q4 FY19, last year. Lets discuss the key financial highlights of SBI Cards & Payment Services Ltd in this article.

SBI Cards Q4 FY20 Results Analysis

India’s Credit Card Industry

• With the rising disposable income and consumption story in India, the Credit Card Industry in India is growing at the much faster pace since last 5 years.
• In India, the credit card user base in 2019 reached 4.7 Crore. Indian Credit Cards Market is anticipated to grow at a CAGR of more than 25% during 2020-2025, on account of :
  • Rising popularity of credit cards
  • Growing trend of purchasing products first and paying later
• Its true that this growth is going to be affected in the short-term due to COVID crisis and the associated slowdown. However, over the long-term prospective Indian Credit Card Industry is going to witness a great growth opportunity with a compounding effect.
• With increasing popularity of credit cards, banks are focusing on urban and semi-urban markets in order to increase their share in the market.
• Major players operating in the country’s Credit Card market include HDFC Bank Limited, SBI Cards and Payment Services Limited, ICICI Bank Limited, Axis Bank Limited, Citibank India, and Bank of Baroda etc. 

Improving Market Share & Growing Portfolio of SBI Cards

• Cards in Force
  • As per RBI Report, as on January 2020, SBI Cards is growing with a market share of 18.2% in terms of Cards in Force.
  • In FY2016, the company’s market share was 14.8% which rose to 18.2% as on January-2020.
  • For FY2019-20, SBI Cards’ Cards in Force (CIF) grew by 28% from 84.71 Lakh in FY19 to 1.05 Cr in FY20.
  • With a great customer base of State Bank of India (SBI), the % share of SBI in CIF is almost 38.2% of the total CIF channels. While the Open Market Sourcing channel contribute 61.2% in Total Cards in Force.
• Spends
  • The market share of SBI Cards is 17.9% in terms of Spends for first 10 months of FY20 ie. 10M FY20 (April-Jan).
  • Market share of SBI Cards in terms of Spends is growing at a CAGR of 10.7% over the last 5 years. The Spends grew by 27% YoY in FY20.
• Thus the market share and portfolio of SBI Cards is improving with a great pace.

Financial Highlights of Q4 FY20 & FY20

Revenue from Operations

• It consists of 2 types of revenue : Interest Income and Non-Interest Income
• Interest Income
  • It is the core income of the Credit Cards Company. It is the interest earned by the company through its primary lending business.
  • Interest Income of SBI Cards in Q4 FY20 grew by almost 42% YoY to Rs.1,348 Cr from Rs.949 Cr in Q4 FY19.
  • As far as, FY20 performance is concerned, the interest income in FY20 grew by 35% to Rs.4,841 Cr from Rs.2,576 Cr in FY19.
• Non- Interest Income
  • It is the income which comes from other sources other than lending activities. Non Interest Income includes Income from Fees and Services, Service Charges, Business Development Incentive Income etc.
  • Non Interest Income has given a flat growth of 4-5% YoY in Q4 FY20 as well as FY20.
• Total Revenue from Operations = (Interest Income + Non-Interest Income)
  • Revenue from Operations has increased by 23% YoY in Q4 FY20 to Rs.2,433 Cr from Rs.1,983 Cr in Q4 FY19.
  • The growth is almost 33% from FY19 to FY20, where Revenue from Operations grew to Rs.9,276 Cr from Rs.6,999 Cr.
  • On the diversified revenue stream, SBI Cards’ interest income was 52% of revenue from operations.

Net Interest Income (NII)

• NII is a very important parameter for analysing the core business growth of the banking or financial lending institution – NBFCs, Credit Card Companies etc.
• Net Interest Income = (Interest Income – Interest Expenses)
• Interest Expenses are nothing but the finance cost incurred by the company while raising funds which are going to be available for the lending.
• Net Interest Income in Q4 FY20 is increased by 50% YoY while for FY20 growth is 39% YoY. Such a robust NII growth is mainly driven by :
  1. A healthy growth of 27% YoY in Net Advances
  2. Rising Net Interest Margin (NIM) by 110 bps to 16.6% in FY20 from 15.5% in FY19

Profit Before Tax (PBT)

• The Total Expenses of the company jumped 42% to Rs.2,398 Cr from Rs 1,691 Cr.
• Considering PBT before COVID provisions, SBI Cards has reported a robust growth of 80% in Q4 FY20 PBT to Rs.692 Cr from Rs.325 Cr in Q4 FY19.
• The company has performed sensitivity analysis, considering the possible effects from the pandemic relating to COVID-19. And based on current estimates it has created specific COVID-Related provision of Rs.489 Cr.
• Profit before tax (PBT) after COVID provisions came in at Rs.112 Cr, down 71% from Rs.385 Cr in the year-ago period.

Net Profit (PAT)

• SBI Cards posted a 66% decline in its net profit at Rs.83.5 Cr for the Q4 FY20. It had posted profit of Rs 248.7 crore in the year-ago quarter (Q4 FY19).
• For the fiscal year 2019-20 ie. FY20, net profit grew 44% to Rs.1,245 Cr from Rs.865 Cr in FY19

COVID Impact on Profitability

• The Total COVID Impact incurred in Q4 FY20 was Rs.579 Cr, which includes :
  • Specific COVID-Related Provisions for NPAs = Rs.489 Cr
  • Impairment Losses towards Late Fee Reversals = Rs.90 Cr
• Thus, the Pre-Tax COVID impact came to be Rs.579 Cr. Whereas the COVID Impact Post-Tax was Rs.417 Cr.
• COVID Impact on Q4 FY20 Profitability
  • Thus, With COVID-19 Impact of Rs.417 Cr (Post-Tax), PAT for Q4 FY20 declined by 66% to Rs.84 Cr from 249 Cr in Q4 FY19.
  • Without Considering COVID-19 Impact, PAT for Q4 FY20 would have been Rs.500 Cr, thus posting a 100% YoY growth from Rs.249 Cr in Q4 FY19.
• COVID Impact on FY20 Profitability
  • With COVID-19 Impact of Rs.417 Cr (Post-Tax), PAT for FY20 rose by 44% to Rs.1,245 Cr from Rs.865 Cr in Q4 FY19.
  • Without Considering COVID-19 Impact, PAT for FY20 would have been Rs.1,662 Cr with almost 92% YoY growth from Rs.865 Cr in Q4 FY19.

Balance sheet Summary

• The Balance sheet size of SBI Cards & Payments Services grew by 26% YoY to Rs.25,303 Cr in FY20 from Rs.20,146 Cr in FY19, driven by a healthy growth in Net advances as well as Borrowings.
• Net Advances has grown by 27% YoY to Rs.22,812 Cr in FY20 from Rs.17,909 Cr in FY19. The advances proceedings in March-2020 would be flat and badly affected by nationwide lockdown amid COVID-19 pandemic.
• The decline in Financial Leverage of the Credit Card Company from 6 to 4.7 in spite of 25% growth in company’s Total Financial Assets, is a very positive sign. It indicates SBI cards is well capitalized to build its assets on its own.
• Return on Average Assets (ROAA) of SBI Cards is improved by 64 basis points (bps) from 4.8% in FY19 to 5.5% in FY20.
• On the other hand, Company’s Return on Average Equity (ROAE) is eroded by 100 bps from 28.4% in FY19 to 27.4% in FY20.

Key Ratios – FY20 vs FY19

Asset Quality Improved

• Gross non-performing assets (GNPA) improved by 43 bps to 2.01% in FY20 from 2.44% in FY20. Net NPA is also improved by 10 bps from 0.8% in FY19 to 0.7% in FY20.
• In accordance with the COVID-related uncertainties, SBI cards’ provision coverage ratio is increased from 66.5% in FY19 to 67.2% in FY20 (rise of 70 bps)

Capital Adequacy Ratio (CAR)

• SBI cards’Total Capital Adequacy Ratio (CAR) as per Basel III guidelines was at 22.4% as on March 31, 2020. CAR is improved significantly by 228 bps from 20.1% in FY19.
• It indicates the significant improvement in the capital positioning of the credit card company year on year.
• CAR is well above the regulatory requirement level given by RBI.

Net Interest Margin (NIM)

• Net Interest Margin (NIM) and the asset growth, both drives the Net Interest income of the SBI cards.
• NIM for the quarter FY20 improved marginally by 110 bps to 16.6% from 15.5% FY19.

SBI Cards – Quantitative Analysis

• Current Market Capitalization = Rs.51,487 Cr (Large Cap Company)
• Return on Equity (ROE) = 29.07%
• Price to Earnings Ratio
  • SBI Cards’ current PE Ratio can be calculated by dividing company’s FY20 net profit by its current market capitalization.
  • Thus, PE Ratio = (Current Market Capitalization / Net Profit for Last 12-Months)
  • So, Current PE Ratio = (Rs.51,487 Cr / Rs.1,245 Cr) = 42.35
• Debt to Equity Ratio
  • Company’s D/E Ratio is 3.25. Being in a lending business, the company need to have an enough capital with it, thus D/E ratio sees to be higher. While, Interest Coverage Ratio of 2.31 (ie. above 2) is also very positive.
• Promoter Holding
  • India’s largest PSU bank – State Bank of India is the Promoter of SBI cards, where the bank holds around 69.55% stake in SBI Cards.
• 5-years Sales & Profit Growth CAGR
  • The 5-years sales growth of SBI Cards is almost 37% CAGR.
  • Whereas, 5-years Net Profit growth is 24% CAGR.

Shareholding Pattern

• Post IPO, State Bank of India’s stake came down from 74% to 69.6% as on March 31, 2020. Whereas CA Rover Holdings of Carlyle Group’s stake also declined to 15.9% from almost 26%.
• FIIs and Mutual Funds are having stake of 4.1% and 3% respectively, which indicates the future growth prospects of SBI cards with the growing Credit Cards Industry in India.