Arihant Capital IPO report on SBI Cards
SBI Card & Payment Services Limited was incorporated on May 15 1998 by its promoter SBI to keep separate the Credit Card business from its parent bank. The company is the largest pure play credit card issuer in India founded in 1998 with registered office in Gurugram and an active cards base of 10.03 million as of Dec 2019. SBI Cards & Payment Services (SBI Cards), a credit card subsidiary of State Bank of India (SBI) will raise Rs 500 crore through fresh issue of shares and up to Rs 9,854 crore through offer for sale of existing shares. After the IPO, SBI’s shareholding will fall to 70% from 74% and that of CA Rover Holdings will reduce to 16% from 26%. The offer will be an OFS of 13,05,26,798 shares by SBI and CA Rover Holdings (Carlyle Group). It also consists of a fresh issue of shares worth Rs. 500 cr. The object of the offer is to achieve the benefits of listing on stock exchange, carry out the OFS by selling share and to enhance visibility and create corporate brand image.
Valuation and Outlook
We are positive on the growth story of SBI Cards owing to its association with parent bank SBI and its vast number of branches across the nation. Considering the equity after IPO and annualizing the net profit in the nine-month to December 2019, the company demands P/E multiple of nearly 45. It has no listed peers in India. A look at more mature markets such as the US reveals that American Express, which derives over half of the revenue from consumer services including credit cards, trades at a trailing P/E of around 17 with RoE of nearly 30%. While SBI Cards’ valuation looks aggressive, it reflects the faster growth in the Indian market as well as the company’s growth momentum. Therefore, we recommend investor’s to SUBSCRIBE for the issue.
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