SBI Cards IPO – Should You Subscribe?

SBI Cards

SBI Cards & Payment Services Limited(“SBI Cards” or the “Company”)  is subsidiary of SBI, offering an extensive credit card portfolio to individual cardholders and corporate clients which includes lifestyle, rewards, travel and fuel, shopping, banking partnership cards and corporate cards covering all major cardholder segments in terms of income profiles and lifestyles.

The Company is the second largest after HDFC Bank. With 10 million cards in force and Rs 98,500 Cr. in card spends in the nine months to December 2019, SBI Cards had 18% market share.

Nearly half the cards are issued using distribution channels of SBI and other banks while the remaining are through its customer acquisition network across 145 Indian cities.

SBI Cards offers credit cards in partnership with the Visa, MasterCard and RuPay payment networks. These companies provide access to SBIC to their payment networks and SBIC in turn pays royalties and fees to these payment networks.

SBI Cards IPO Issue Details

Issue Open

2-Mar-20

Issue Closes

5- Mar-20

Offer Price

Rs. 750 – Rs. 755

Face Value

Rs. 10

Pre Issue Shares o/s (Cr.)

93.23

Offer for Sale (No of sh. Cr.)

13.05

Fresh Issue (Cr.)

0.66

Post Issue Shares o/s (Cr.)

93.89

Issue Size (In Rs. Cr.)

10,358.60

POST ISSUE DETAILS

Shareholding pattern

Promoters

69.5%

Non-Promoters

30.5%

Financial Performance

Particulars

FY17

FY18

FY19

9M FY20

Revenue (In Rs. Cr.)

3346.20

5186.98

6999.11

6843.06

Growth

55.01%

34.94%

-2.23%

Net Interest Income(In Rs. Cr.)

1,359.73

2,048.47

2,558.50

2,526.71

Growth

50.65%

24.90%

-1.24%

PAT (In Rs. Cr.)

372.86

601.14

862.72

1,161.21

PAT Margin

11.14%

11.59%

12.33%

16.97%

EPS (In Rs.)

4.75

7.40

9.43

12.45

EPS Growth Rate

56%

27%

32%

Historic P/E (Closing Price of 31st March)

CURRENT P/E (based on upper price band of – Rs. 755)

45.48 (based on 9M FY2020 annualised earnings)

CURRENT P/B

12.58

Book Value

15.4

25.1

38.1

60.0

D/E

5.34

4.43

3.48

3.65

ROA

3.5%

4.6%

4.8%

6.6%

ROE

25.74%

25.55%

24.09%

24.44%

GNPA

2.3%

2.8%

2.4%

2.5%

NNPA

0.8%

0.9%

0.8%

0.8%

               

Peer Comparison

SBI Cards IPO

WHAT’S DRIVING THE IPO?

Diversified Revenue Model

The Company generates both non-interest income (primarily comprised of fee-based income such as interchange fees, late fees and annual fees, among others) as well as interest income on the credit card receivables. Interest income was 52% of the total income in FY19 and 48% comes from non-interest income which has improved from 39% in FY17 thus providing more stability to the revenue.

Strong Financial Position

The Company’s total revenue grew robustly at a CAGR of 44.6% from FY17-19 while its net profit grew by a CAGR of 52.1%.NIM has largely been stable at ~15.5%. The Company pays a royalty fees to SBI for using its logo. The royalty fees is 2% of net profits or 0.2% of total income, whichever is higher.

Distribution Network

SBI Cards operates through a diversified customer acquisition network including sales force of 32,677 outsourced personnel operating out of 145 Indian cities. The Company also has access to SBI’s network of 21,961 branches across India and their 445.5 million customers to market its products.

Diversified Credit Card Portfolio

The portfolio includes SBI Card-branded credit cards as well as co-branded credit cards. The Company offers four primary SBI Card – branded credit cards: SimplySave, Simply Click, Prime and Elite.

It is also the largest co-brand credit card issuer in India and has partnership with travel, fuel, fashion, healthcare and mobility industries like Air India, Apollo Hospitals, BPCL, Etihad Guest, FBB, IRCTC, OLA Money and Yatra, among others

Highly Under penetrated Market Provides Huge Potential

As per CRISIL, Indian credit card market is highly under penetrated at just 3% and expects it to grow at 23% CAGR over the next five years, driven by the increasing penetration in smaller cities, rising organized retail and growth in payments infrastructure. It also expects credit card spend to grow 2.5x over the next 5 years, led by focus on digitalization, developments in e-commerce, and the demographic changes.

WHAT’S DRAGGING THE IPO?

Intense Competition

The Company operates in a highly competitive credit card market which is expected to intensify going forward. It also faces competition from new-age fin-tech led payment modes including Unified Payment Interface (UPI) and mobile wallets.

Unsecured Retail Category

Interest rates charged by credit card companies are not regulated and does not move in tandem to the market rate. Any move to regulate these could have a severe impact.

View – SUBSCRIBE. Given its dominant position in the credit card market and strong parentage, the Company is well placed to benefit from the rising trend of digital payments and e-commerce. At the upper price band, the offer is valued at 45.8x FY20E P/E. Strong growth and stable asset quality justifies premium valuation. Further, being the first in the segment to get listed, it could generate high investor interest.