The country’s largest public-sector lender State Bank of India (SBI) has filed an initial draft with Security and Exchange Board of India (Sebi) to sell up to 4 percent stake in its credit card venture, SBI Cards and Payments Services (SBI Cards). The IPO is expected to be around Rs 9,000-9,600 crore in size and as per reports, it is likely to hit the market this month.

SBI, which holds a 74 percent stake in the unit, along with private equity firm Carlyle Group, which holds the rest 26 percent through its subsidiary CA Rover Holdings, will together sell 13 crore shares or 14 percent of the company through the IPO. While Carlyle is looking to sell a 10 percent stake via the IPO, SBI would sell a 4 percent stake in the company.

The share sale is poised to become the fifth-largest IPO in the country after Coal India, Reliance Power, GIC Re and Oil and Natural Gas Corp (ONGC) and will help the parent, SBI, raise funds to boost credit growth. For FY19-20, it is likely to be the largest IPO.

Sensing strong fundamentals and massive network of the SBI and its cards and payment services spread, the SBI Cards IPO is expected to perform well on the Stock Exchanges. SBI Cards has moved to the second position in India with a market share of 18 per cent and it has the potential to scale up further, riding Indian consumers’ increasing predilection for credit cards and higher penetration in its captive Banca customers.

The low penetration in SBI customer base plus strong distribution means SBI Cards’ card base can grow at 23 percent CAGR over FY19-24. Increased focus on EMI products can lead to loan book growing at an even faster pace at 46 percent CAGR during this period, the report stated.

Summary of financial Information (Restated):

With a card base of 9.5 million as of September 2019 and growing at 35 percent Y-o-Y since FY15, it has claimed a market share of 18 percent versus 15 percent in FY15. Growth in outstanding card receivables/loan book is also higher at 41 percent YoY over FY15-19 to Rs 23,000 crore.

As a subsidiary of SBI, the company has access to SBI’s extensive network of 22,007 branches across India. The partnership enables it to market its cards to a huge customer base of 436.4 million customers.

Headquartered in New Delhi, as of September 30, 2019, the company has a sales force of 33,086 outsourced sales personnel operating out of 133 Indian cities.

The total income increased from ₹3471 Crores in fiscal 2017 to ₹7286 Crores in fiscal 2019 at a CAGR of 44.9% and revenues from operations have increased from ₹3346 Crores in fiscal 2017 to ₹6999 Crores in fiscal 2019 at a CAGR of 44.6%.

The net profit increased from ₹372 Crores in fiscal 2017 to ₹862 Crores in fiscal 2019 at a CAGR of 52.1%.

The ROAE has remained stable at 28.5% in fiscal 2017 and 28.4% in fiscal 2019, while ROAA increased from 4.0% in fiscal 2017 to 4.8% in fiscal 2019.

Particulars For the year/period ended (₹ in Million)
  30-Sep-19 31-Mar-19 31-Mar-18 31-Mar-17
Total
Assets
244,591.43 202,396.34 156,860.02 107,649.85
Total
Revenue
46,772.08 72,868.34 53,701.92 34,710.38
Profit
After Tax
7,258.82 8,627.19 6,011.43 3,728.59

Objects of the Issue:

The Offer comprises of a Fresh Issue and an Offer for Sale-

1. The Offer for Sale- The object of the Offer for Sale is to allow the Selling Shareholders to sell an aggregate of up to [●] Equity Shares held by them. The company will not receive any proceeds from the Offer for Sale.

2. Fresh Issue- The net proceeds of the Fresh Issue, i.e. Gross proceeds of the Fresh Issue less the Offer Expenses apportioned to the Company (“Net Proceeds”) are proposed to be utilized for augmenting the capital base to meet company’s future capital
requirements.

SBI Cards IPO Details:

Issue
Open
Issue
Type
Book
Built Issue IPO
Issue
Size
Fresh
Issue
[.] Eq Shares of ₹10 (aggregating up to ₹500.00
Cr)
Offer
for Sale
130,526,798 Eq Shares of ₹10 (aggregating up to
₹[.] Cr)
Face
Value
₹10 Per Equity Share
Issue
Price
[.]
to [.] Per Equity Share
Market
Lot
Min
Order Quantity
Listing
At
BSE,
NSE

SBI Cards IPO Promoter Holding

Pre
Issue Share Holding
74%
Post
Issue Share Holding

Note:

  • Investors Portion: QIB = Not More than 50% of the offer, NII = Not less than 15% of the offer and Retail = Not less than 35% of the offer
  • Employee Reservation Portion: Up to 1,864,669 Equity Shares
  • Shareholders Reservation Portion: Up to 13,052,680 Equity Shares

Competitive Strengths:

  • 2nd largest credit card issuer in India with a strong track record of growth and profitability. 
  • Leading player in open market customer acquisitions using physical and digital channels in India.
  • A well-known promoter in SBI with strong brand recognition.
  • Diversified credit card portfolio and partnerships with leading brands across industries.

Opportunity:

  • The business of credit cards in India is at a very nascent stage. As per DRHP, our country has an urban population of approximately 45 Crores. We may assume that a credit card is used mostly by the urban population. In India, as on date, we have approximately 5 Crores credit cards, so in terms of urban population, this is very thin.
  • In the e-commerce industry, only 30-35% payment is made through Credit card and the majority of the payment is done through cash on delivery model. Nowadays, these e-commerce companies are giving an option to the user to pay via debit or credit card instead of cash by providing a POS machine while delivering a product. This will also give impetus to credit card companies. Moreover, the e-commerce industry itself at the nascent stage, so the growth of the e-commerce industry will have a direct impact on the credit card business.
  • Millennials (age below 30 ) are using a credit card more often than our old age counterparts. India has one of the youngest populations in the world. The median age of India’s population is 28.4, which is the youngest as compared to the USA( 38.4), China(38.4), Russia(39.6) and Japan(48.4). This factor is also a driving force for credit card companies.
  • As we are moving towards a cashless economy, the growth of a Credit Card is inevitable.

Risk:

  • SBI cards also commands a relatively strong RoA of around 5.5 per cent (normalized in H1FY20), driven by better margins or fees on better revolve rates and contained credit costs, while the benefit of lower tax rate can help RoAs in the near term. However, it needs to focus on improving operating leverage, spends per card via focusing on open market sourced carded/premium customers to drive fees and convert spends into EMIs/Term Loans to bring stability to its otherwise superior margins/RoAs. Amid rising asset-quality risk due to weakening economic trends and rising unemployment rates, SBIC with its otherwise higher delinquency rates (GNPA
    ratio of 2.3 per cent) and lower customer vintage would need to be watched carefully.
  • The current risk credit card companies have is the impact on business due to the slowdown in the economy. In the slowing economy, the loss of jobs happened quite fast. Loss of job has the first casualty on Credit card payment. As these companies don’t have any other business, the risk will be more in a prolonged slowdown.

Investor’s Take:

  • SBI Card has shown tremendous growth in terms of revenue in the last 3 years. After demonetization, the demand for cash reduces which has given impetus to credit card companies.
  • SBI Card PAT has grown from Rs. 372 Crores to Rs.859 Crores in the last 3 years.
  • The company has ROE( Return on Equity ) of 25%, 25% and 23% in FY16-17. 17-18 and 18-19, which is excellent.
  • SBI Cards IPO has a backing of strong parent company like State Bank of India (SBI).

An investor can go for the subscription of the SBI Cards IPO when it becomes available for subscription.

We will provide the detail IPO review later on. Stay tuned with us..

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