Published on 27/02/2020 3:35:46 PM | Source: Geojit Financial Services Ltd

IPO Note - SBI Cards & Payment Services Ltd By Geojit Financial

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The drive to go digital …

SBI Cards & Payment Services (SBI Cards) is the leading issuer of credit cards in India. Incorporated in October 1998 as a joint venture between State bank of India and GE Capital. Later in December 2017 State Bank of India and Carlyle Group acquired GE Capital’s stake in the company. Company offers Indian consumers access to a wide range of world-class, value added payment products and services. At present SBI cards operates through a footprint of more than 130 cities in India


* SBI cards is the second largest credit card company in India with a market share of 18%, accounting for more than 1cr cards.

* India’s largest PSU Bank, SBI, is its promoter with 74% holding followed by largest private equity firm Carlyle group which holds 26% stake.

* SBI Cards is the largest co-branded credit card issuer with partnerships with leading companies in India like IRCTC, Yatra, Big Bazaar.

* It acquires majority of its customers through its strong partnership with national brands, compared to bancassurance route by other leading players.

*The penetration of credit cards in India is relatively low, at 3% compared to 42% in Asian peers like China, which indicates potential for long-term growth.

* The outlook for business is healthy with 35% & 54% CAGR in credit card spending and outstanding during FY17-FY19.

* SBI Cards total revenue grew at CAGR of 46% and Net profit grew 52% CAGR during FY17-FY19. ROE is robust at 31% which is in-line with best international standards.

* At the upper price band of Rs 755, SBI Cards is available at P/E of 46x FY20, Valuation looks justified taking into consideration the historical high growth rate.

* Given strong parentage and sustainability of growth rate with huge potential for digital payments in India, we recommend ‘SUBSCRIBE’ to the issue with a longterm perspective.


Purpose of IPO

At the upper price band, total issue size stands at Rs 10,355cr. The issue comprises offer for sale (OFS) of Rs9,855cr wherein, Promoter SBI is diluting 3.72cr shares and Carlyle group diluting 9.32cr shares. The issue also constitutes a fresh issue of Rs500cr which will be used to strengthen company’s capital base and ensure compliance with RBI directives.


Special Reservations for Shareholder & Employees

* IPO will remain exclusively open for retail investors (including employees & shareholders) on 05th March 2020.

* SBI shareholder who held shares as on 18th February 2020 is eligible to apply under shareholder category with maximum limit being Rs 2,00,000.

* SBI employees can apply in the employee category with maximum limit of Rs 5,00,000 with a discount of Rs 75 per share.


Key Risks

* Competition from other leading credit card players.

* Any change in Charge rates and fees due to regulatory actions.

* High borrowing cost being an NBFC.


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