Ajcon Global's IPO report on SBI Cards
Incorporated in 1998, SBI Cards and Payment Services Limited is a subsidiary of SBI, India's largest commercial bank in terms of deposits, advances and the number of branches. SBI holds 74% stake in SBI Cards, while Carlyle owns the rest 26% through its subsidiary CA Rover Holdings. The company is the 2nd largest credit card issuer in the country, with a 17.6% and ~18.1% market share of the Indian credit card market (number of credit cards) as of March 31, 2019, and November 30, 2019, respectively, and a 17.1% and 17.9% market share of the Indian credit card market (total credit card spends) in fiscal 2019 and in the eight months ended November 30, 2019. The Company has a broad credit card portfolio that includes SBI Card-branded credit cards as well as cobranded credit cards that bear both the SBI Card brand and its co-brand partners’ brands. The Company offers four primary SBI Cardbranded credit cards: SimplySave, SimplyClick, Prime and Elite, each catering to a varying set of cardholder needs. The Company is also the largest co-brand credit card issuer in India according to the CRISIL Report, and has partnerships with several major players in the travel, fuel, fashion, healthcare and mobility industries, including Air India, Apollo Hospitals, BPCL, Etihad Guest, Fbb, IRCTC, OLA Money and Yatra, among others. 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. As a subsidiary of SBI, the company has access to SBI's extensive network of 22,007 branches across India. The partnership enables it to market its cards to a huge customer base of 436.4 million customers. The Company’s extensive physical customer acquisition network is complemented by its digital sales and marketing capabilities which include its website, mobile application and online, email and SMS marketing platforms.
Valuation and Outlook
At upper end of the price band of Rs. 755, the issue is valued at a at a P/E of 46x at 9MFY20 annualised EPS and 82x at FY19 EPS which is at a steep premium. With absence of pure play credit player in the listed space, we believe Company will enjoy scarcity premium and the recent fancy for companies with differentiated business model has aided in delivering superior returns for shareholders post listing instills confidence on this issue. We have a positive bias to the Company owing to the following factors: a) big opportunity to be seized as India’s credit card spends as % of GDP is 3 percent as compared to South Korea – 37%, Hong Kong – 25%, US – 17%, Brazil – 12%, b) 2nd largest credit card issuer in India with a strong track record of growth and profitability, c) legacy of 20+ years, d) leading player in open market customer acquisitions using physical and digital channels in India, e) largest co-brand player, f) supported by a strong brand and pre-eminent promoter with SBI holding of 74 percent (pre IPO), g) pan – India presence, h) technology driven operating model with advanced digital platform, i) advanced risk management and data analytics capabilities, j) modern and scalable technology infrastructure, k) strong record of financial performance, i) robust RoAA of 4 percent + since FY17 and strong ROE of 28 percent+, we recommend investors to “SUBSCRIBE” the issue.
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