Published on 27/02/2020 5:02:46 PM | Source: LKP Securities Ltd

IPO Note - SBI Cards & Payment Services Ltd By LKP Securities

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SBI Cards, a NBFC – Systematically Important Non-Deposit Taking Company (NBFC-ND-SI) and subsidiary of SBI, having nearly 20 yrs of operating history is the second largest credit card company with market share of 17.9%. It is a JV between SBI (which holds 74% in the company) and Carlyle Group (26%). Business model of the company is unique as it is the only company in India having pure credit card business whereas for other banks, credit card business is done via bank only and there is no separate subsidiary for the same business. Hence, SBI Cards enjoys superior return ratios – ROE and ROA of 36.5% and 6.7% (9MFY20) on the total asset base of ₹246 bn.


About the business

SBI Cards is the second largest credit card issuer in India both in terms of credit card outstanding and amount of credit card spends (1032.6 bn in FY19). It had total outstanding card base of 9.83 mn as on Nov 2019. It has diversified portfolio of credit card offerings catering to individual and corporate clients and includes lifestyle, rewards, travel & fuel, shopping, banking partnership cards and corporate credit cards. It offers primary 4 SBI-branded credit cards namely – SimplySave, SimplyClick, Prime and Elite. It has pan India presence in 145 cities with 3190 open market physical point of sale in India. It has strong distribution network and tie-ups with 12 non-bank co-brand partners and 9 co-brand bank partners allowing it to cross-sell its credit cards to partners existing customer base. More importantly, it has access to SBI’s extensive network of 21961 branches and vast customer base of 445.5 mn where the company can cross-sell its products. Management team which is highly experienced is headed by MD&CEO, Mr.Hardayal Prasad, who has 36 yrs of experience in financial services. On the financial side, the NBFC has total asset size of Rs260 bn (Dec’2019) and ROE and ROA of 36.5% and 6.7% (9MFY20). Profitabiility of the company is growing by leaps and bounds – reported PAT has grown by 52% CAGR during FY17-19. Going forward, trend is likely to continue – PAT is estimated to grow by 57% CAGR over FY20-22e given favourable demographics, rise in digital payments, boom in e-commerce industry, SBI parentage and aggressive approach of the management


Recommend Subscribe to the issue with a target price of ₹1,220

Profitability of the NBFC is expected to remain strong – PAT to grow at 57% CAGR during FY20-22e with ROE/ROA >33%/7% in FY21e. At the upper price band, the company is trading at 7.9x FY21e and 5.6x FY22e ABV. Given key strengths of the company like - its unique business model which is a pure credit card play, high growth phase alongwith strong profitability matrix, favourable demographic dividend is likely to trade at higher multiples. We accord fair value of 1220, discounting its FY22e ABV by 9.5x, giving upside potential of 62% from the IPO Price.


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