LKP Research's IPO report on SBI Cards
SBI Cards, a NBFC – Systematically Important Non-Deposit Taking Company (NBFC-ND-SI) and subsidiary of SBI, having nearly 20 yrs of operating history is the second largest credit card company with market share of 17.9%. It is a JV between SBI (which holds 74% in the company) and Carlyle Group (26%). Business model of the company is unique as it is the only company in India having pure credit card business whereas for other banks, credit card business is done via bank only and there is no separate subsidiary for the same business. Hence, SBI Cards enjoys superior return ratios – ROE and ROA of 36.5% and 6.7% (9MFY20) on the total asset base of ₹246 bn.
Valuation and Outlook
Profitability of the NBFC is expected to remain strong – PAT to grow at 57% CAGR during FY20-22e with ROE/ROA >33%/7% in FY21e. At the upper price band, the company is trading at 7.9x FY21e and 5.6x FY22e ABV. Given key strengths of the company like - its unique business model which is a pure credit card play, high growth phase alongwith strong profitability matrix, favourable demographic dividend is likely to trade at higher multiples. We accord fair value of 1220, discounting its FY22e ABV by 9.5x, giving upside potential of 62% from the IPO Price.
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