SBI Cards IPO, Opportunity For Investors in Dicey Market

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Gaurav Bora, Market Expert

1. India’s largest bank SBI is going to list its Credit Card subsidiary SBI Cards which is incorporated in 1998. SBI currently holds 74.00% of the pre issue capital of the Company. The company is the 2nd largest credit card issuer in the country with 18.1% market share of the Indian credit card market as on November 30, 2019. SBI Cards offers a wide range of credit cards to individual and corporate clients including lifestyle, rewards, shopping, travel, fuel, banking partnership cards, and corporate cards, etc.
2. As a subsidiary of SBI, the company has access to SBI’s extensive network of 21,961 branches across India. The partnership enables it to market its cards to a huge customer base of 445.5 million customers. As of December 31, 2019, the company has a sales force of 38,677 outsourced sales personnel operating out of 145 Indian cities presence in 3,190 open market point of sales and access to extensive network of SBI’s vast customer base of 44.55 crore customers. Strong brand recognition of SBI enables company to acquire large no of customers at cheap pricing
3. SBI Cards IPO will be the largest IPO after General Insurance Corporation of India which came out with the initial offering in October 2017. SBI Cards proposes to raise Rs 10,355 crore at the upper price band i.e. Rs 755/share. SBI Cards already raised 2,769 crore from 74 anchor investors on Friday 28 February. The objective of the offer for sale is to allow the selling shareholders (State Bank of India and CA Rover) to sell equity shares held by them. Hence, SBI Cards will not receive any proceeds from the offer for sale. The net proceeds of the fresh issue off 500 crore are proposed to be utilized for augmenting the capital base of the company to meet future capital requirements.
4. The revenue from credit card products consists primarily of interest on credit card receivables and non-interest income primarily comprising of fee-based income such as interchange fees, late fees, annual credit card membership fees and other fees. The interest that it earns on revolving credit card balances and monthly installment balances comprised 51 percent of total revenue from operations, and non-interest income comprised 49 percent of revenue from operations, in the nine months ended December 2019. During FY17 to FY19 its total credit card spends grew at a rate of 54.2% and the number of credit cards outstanding at a 34.5% CAGR. The net profit grew at a CAGR of 52.1% during the period.
5. Credit card spends have registered robust growth, growing at a CAGR of 32% from FY15 to FY19 to reach Rs 6 lakh crore in FY19, it is expected to grow at a healthy rate to reach Rs 15 lakh crore in FY24. The number of credit cards issued stood at 4.7 crore in FY19, growing at a CAGR of 20% over the last five years. HDFC Bank, SBI, Axis Bank and ICICI Bank holds 72% market share as on March 2019. HDFC Bank is the market leader and has maintained its market share at 27%, followed by SBI Card 18%, ICICI Bank 14% and Axis Bank 13%. Going forward I am expecting credit cards spend to grow at a much faster pace, credit card industry has a bright future in this digital age.

Our View:

Subscribe for listing gains we are expecting min 40% listing gains, long term investors can hold it for capital appreciation.

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