Credit Card spends in India witnessed 32% CAGR over FY15-19 to reach Rs. 6 trn; and is expected to reach Rs.15 trn by FY24, according to CRISIL Research. Cards outstanding are forecasted to grow by 23% p.a. over the next five years. This growth will be driven by banks’ focus on crossselling cards to existing customers, co-branding partnerships, ecommerce boom, more sophisticated IT infra, increased acceptance by millennial etc.
SBI Cards is the second-largest credit card issuer in India, with 18.1% market share of the Indian credit card market in terms of the number of credit cards outstanding and 17.9% market share of the Indian credit card market in terms of total credit card spends as of 8MFY20.
Company have a diversified customer acquisition network that enables it to engage prospective customers across multiple channels. Company deploy a sales force of 32,677 outsourced sales personnel as of Dec 2019 operating out of 145 Indian cities and which engages prospective customers through multiple channels, including physical points of sale as well as through telesales, online channels, email, SMS marketing and mobile applications.
With over 20 years of expertise in the business company has managed to grow faster than Indian industry average. Over FY17-19, its total credit card spends grew at 54% CAGR (as compared to 36% CAGR for the industry) and the number of credit cards outstanding grew at a 35% CAGR (as compared to a 26% CAGR for the industry). During the same time, company has registered 44.6% CAGR in top line and 52% CAGR in bottom-line with sustainable RoA >4% and RoE of ~28%.
Company has over the years developed scalable and modern technology infrastructure capable of servicing the entire credit card life cycle. Through its advanced risk management and data analytics capabilities, company has developed models that estimate risk more accurately for new-to-credit and new-to-card cardholders without a credit history.
* Over dependence on SBI.
* Any change in regulation related to MDR (Merchant Discount Rate) and unsecured financing pattern can disrupt business.
* Competition from other Banks, NBFCs and UPI Services & e-wallets.
* Economic slowdown affects consumer spending.
We believe SBI card is a multiyear growth story and presents an opportunity to participate in a lowly penetrated industry. It is a proxy to the fast-growing digital payments space in India and first of its kind to go for an IPO. It will attract a lot of investors. We believe it will give a handsome returns on the listing day itself. We rate “Subscribe” Rating for this ‘Talk of the Town’ and highly anticipated IPO of SBI Cards.
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