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Why & How to Invest in SBI Credit Card IPO: Analyst Review & Details

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SBI Credit Card IPO Details (1)

The initial public offer (IPO) of India’s second largest credit card supplier SBI Cards and Payment Services will open on 2nd March 2020.

Yes, SBI Cards is going to rise about Rs 10,000 crore through this IPO by divesting its 4% stake in which SBI holds 74% stake while remaining 26% is owned by Carlyle Group that will sell 10% of its stake. Carlyle bought the stake in 2017 from GE.

The IPO which will open on 2nd March and close on 5th March priced in the band of Rs 750-755  comprises issue of fresh equity shares aggregating to Rs 500 crore and an offer for sale of nearly 13 crore shares. SBI and Carlyle Group will offload 3.73 crore shares and 9.32 crore shares respectively.

SBI Credit Cards Business Overview

Over the past few years the credit card business in India has increased tremendously with further scope and opportunities for suppliers.

As per the industry reports Credit Card spends in the country increased by 32% annually to Rs 6.1 trillion between FY15 and FY19 according to RBI and CRISIL following rising awareness of digital payments. The proportion of digital transactions increased to 62% in FY19 from 25%  in FY14.

And after HDFC Bank, SBI Cards is second-largest credit card issuer in India, with 18% market share in terms of the number of credit cards. And with 10 million cards in force and Rs 98,500 crore in card spends in the nine months to Dec 2019.

Also Read: How to Get Lifetime Free Credit Card?

It is operating through multiple channels and outlets. Nearly half the cards are issued using distribution channels of SBI and other banks while the remaining are through its customer acquisition network across 145 Indian cities.

SBI Credit Cards Financial Performance

In terms of financials, the company’s revenue from operations increased from ₹3,346 crore in fiscal 2017 to ₹6,999 crore in fiscal 2019 at a CAGR of 44.6%. The net profit in same period increased from ₹372 crore to ₹862 at a CAGR of 52.1%. Its return on equity (RoE) has remained above 28 % since FY17 giving an interesting returns.

How Do Credit Card Companies Make Money: Graphic

Apart from making the transaction charges from customers as well as merchants, credit card companies earn from following sources:

  • Interest on EMIs.
  • ATM Withdrawal Charges.
  • Cash on Call.
  • Late payment fees.
  • EMI on Cash on Call.
  • Fees convert to EMIs
  • Annual payment charges.
  • Transaction costs of any of the above charges.

Credit Card Penetrations in India vs Top Countries:

Credit card penetrations in India is very-very low just 3% compare developed nations like 320% in US,  214% in Japan, 94% in UK and far below than developing nations like China (42%) and Brazil (73%), implies too much scope for leading companies like SBI credit card to penetrate the untapped cities and acquire more customers.  

In past 4 year new credit card issuance has increased 10 times to 10% among customers below the age of 25 years young working population.

Annual Credit Card Spending in India

Presently HDFC bank is market leader with 1.25 Crore outstanding followed by SBI cards with 83 Lacs outstanding cards.

Credit Card Market Insights & Growth Scenario

  • HDFC is the market leader in No of card outstanding as well as average spends and outstanding while SBI cards is second largest player with market share of 18%.
  • 5 Year CAGR of no of cards is 23% while credit cards spend is 44%.
  • Asset quality is stable with gross NPA of 2.5% as on March 19.
  • SBI cards has co- branded cards with IRCTC, BPCL, OLA, Air India and Apollo Hospital
  • Receivables as on 30st Sep 2019 is 23038 Crore.
  • Average yield is about 21% and NIM is about 15%.
  • ROA is 4 to 4.8%.

Other Growth Factors:

  1. E-commerce industry in India is growing with a pace of 32% CAGR in past 5 year and is expected to grow at 25% CAGR over next 5 year.
  2. E-com industry size was INR 713 bn. In FY14 in FY19 it reaches to INR 3000+ bn and expected to cross INR 9000 bn by FY24. Since Most of the E com companies started accepting Cards payment in COD (cash on delivery) Cards spends likely to be increased.
  3. Median age of India is 28 years new credit card origination has shown highest growth in age group of 20-30 years.
  4. Organized retail penetration (including E-com) is just 11% and is expected to be about 15% by FY24.
  5. With deeper penetration of payment network of PayTM and PhonePay and credit card spends are increasing.
  6. Promoter advantage, about 70% of the customers sourcing done by SBI.

SBI Credit Card IPO Risk Factors

Although, owing to digitalization, competition from prepaid instruments such as e-wallets and UPI service is rising though they are mainly used for small transactions and do not offer credit period or benefit of reward points unlike credit cards.

And SBI Cards has adopted technologies to offer virtual cards on various mobile platforms thereby improving its appeal to tech savvy young generation. Economic slowdown affecting discretionary spend is another major risk. However, so far, the company has not experienced any slowdown in either card issuance or card spending.

Annual Card Spending in India Slowing Down

Yet only about 5% of Indians’ consumption per capita takes place through credit cards. After growing 12% annually over four years, average spending per card is stalling. While a slowdown is only to be expected given a sharp decline in economic momentum, the reason has more to do with the merchant than the spender.

Presently there is a cap on interchange fees on debit card any regulation on limiting interchange fees on credit card will adversely affect the performance of the company. Presently 21% of the total revenue comes from Interchange fees.

More than half of the income comes from interest on outstanding ( Revolving and EMI loan) any Regulatory change capping the interest rate will adversely affect the company. And slowdown in economy especially BPO and IT space leads to bulk of default. Earlier Barclays has shut down their credit card business due to economic slowdown, as most of credit card customers are working in private sectors with risk of job loss.

Analysts View on SBI Card IPO

As per the best stock broker in India and most of the securities firms remains positive on this IPO, citing many factors: Low free-float, first credit cards/payments company to get listed (only proxy to the fast-growing digital payments space), the company is the second largest credit card issuer with 18% market share in cards outstanding and spends and demonstrated faster business growth than industry.


Why and How to Invest in SBI Card IPO?

As, the financials and operating performance of the company is very encouraging and carrying many advantages like having second largest leadership in the credit card market, demonstrated track record of growth and profitability.

It has diversified customer acquisition capabilities, advanced risk management and data analytics capabilities with modern and scalable technology infrastructure to analyze the industry growth, scope and other scenario timely.

In my view you can subscribe to this IPO and gain 20-25% returns on the listing day and from long term investment point of view, you can also try in IPO or buy from the stock market after few days, when it will correct after listing gains.  

So, open online demat account now to invest in IPO. And I suggest you to bid at least 5 shares to get the allotment, as there is huge demand of this shares in the grey as well as primary market and the whole IPO will be oversubscribed many times.  

SBI Credit Card IPO Details:

Issue Open Date On 2nd March 2020
Issue Close Date On 5th March 2020
Issue SizeRs 10,290 Cr – 10,355 Cr
Price BandRs 750-755
Bid Lot Size19 Shares (there after in multiples)
Fresh Issue Rs 5000 million
Offer For Sale 130,526,798
Investors Portion QIB = 50% NII = 15% & Retail = 35% of the offer.
Employees Reservation Portion Up to 1,864,669 Equity Shares
Shareholders Reservation Portion Up to 13,052,680 Equity Shares.
Tentative Listing Date16 March 2020

Also Watch: SBI Cards IPO – Fundamental Analysis Video

Disclaimer: The views and investment tips expressed by investment expert on VSINGHBISEN.COM are his own and not that of the website or its management. vsinghbisen.com advises users to check with certified experts before taking any investment decisions.

Sources: SBI Credit Card DRHP, SEBI & Livemint

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