ICICI Direct's IPO report on SBI Cards
SBI Cards (SBIC), a subsidiary of State Bank of India, is the second largest credit card issuer with 93.2 lakh outstanding credit cards and ~ Rs 98486 crore in terms of total credit card spends as on December 2019, entailing into a market share of 18.1% and 17.9% respectively. Diversified customer acquisition network and large product suite (largest number of co-branding partnership) enables better customer engagement across multiple channels. SBIC has maintained a strong earnings trajectory with revenue growth at 44.6% CAGR to ~Rs 6999 crore in 2017 and net profit trajectory at 52.1% CAGR to ~Rs 862.7 crore in 2019 with sustainable RoA >4% and RoE~28%.
Valuation and Outlook
SBIC offers investment opportunity in unique business model with strong profitability. Sustainability of higher business growth and strong return ratios (sustained RoA >4% & RoE~28%) justifies premium valuation for the business. Therefore, we recommend a SUBSCRIBE recommendation on the stock. At higher end of the price band of Rs 755, the stock is available at a P/E of ~46x (annualised on post issue basis) and P/BV of ~13.5x (post issue).
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