SBI Cards IPO: Huge customer base, strong promoter backing; should you ‘subscribe’? Analysts explore

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Updated: Feb 26, 2020 8:35 AM

SBI Cards is the second-largest market player when it comes to credit cards. SBI is India’s largest commercial bank in terms of deposits, advances and number of branches as of September 30, 2019.

SBI cards and payment services ipoThe number of credit cards issued by SBI Cards stands at 47 million in fiscal 2019, having grown at a CAGR of 20 per cent over the last five years

With the announcement of SBI Cards and Payments Services’ initial public offer (IPO), streets are abuzz. SBI Cards, the second largest card issuer in the country with more than 18 per cent market share, will offer something different to the investors which makes it interesting, analysts say. With a strong backing in the form of State Bank of India, SBI Cards has strong financials and capabilities to cruise through risks with experienced management. Here’s what analysts say about the Rs 10,000 crore IPO.

SBI Brand name

“It has strong parentage support of SBI which enables the company to use the latter’s network to expand its customer base,” Ajit Mishra, VP Research, Religare Broking Limited told Financial Express Online. SBI Bank has a 74 per cent shareholding in the company which will fall to 69 per cent after the IPO. The biggest lender in the country, SBI, is one of the biggest factors that has aided SBI Cards.

“Substantially all of its credit cards carry the SBI Card brand, which is a highly trusted and recognizable brand in India,” said HDFC Securities in a research note. “Its Promoter, SBI, is India’s largest commercial bank in terms of deposits, advances and number of branches as of September 30, 2019. Its relationship with SBI provides it with access to SBI’s extensive branch network of 21,961 branches across India and enables it to market credit cards to SBI’s largely untapped customer base comprising 445.5 million customers as of December 31, 2019,” the report adds.

Under tapped credit card market

SBI Cards is the second-largest market player when it comes to credit cards with an 18 per cent market share and 10 million cards as of September 2019. “Penetration of credit cards is relatively low in India,” says Vinod Nair, Head of Research at Geojit Financial Services. “It is only at 3% compared to 42% in China which shows a huge potential. Additionally, the demography of India, i.e. a relatively young population with higher spending power and growing consumption demand from smaller cities will all aid credit card penetration and usage. The outlook for the business also looks healthy with the total credit card spends,” he adds. 

The number of its credit cards outstanding grew at a 34.5 per cent at CAGR as compared to a 25.6 per cent for the overall credit card industry, according to the RBI. According to HDFC Securities, SBI Cards’ has diverse offerings in its credit card portfolio which are likely to benefit the company as credit card usage shoots up in India. Analysts believe the relatively young population of India with higher spending power and growing consumption demand from smaller cities will all aid credit card penetration and usage.

Strong Financials

Ajit Mishra of Religare Broking thinks that the IPO is being valued at a higher premium. “Nonetheless, its healthy financials, rising market share and first-mover advantage (first company to list from the credit card industry) are the key positives which could help the IPO garner good response from investors,” he adds. The financial performance of SBI Cards too has been impressive with strong revenue and net profit CAGR of 44.6% and 52.1% respectively (over FY17-19) and asset quality too has largely remained stable over the same period.

The number of credit cards issued by SBI Cards stands at 47 million in fiscal 2019, having grown at a CAGR of 20 per cent over the last five years, and is expected to grow by 25 per cent from fiscal 2019 to fiscal 2020, while annual average spends per card is expected to grow by approximately 1 per cent from fiscal 2019 to fiscal 2020, according to CRISIL Research.

“Financially as well as operationally, the company has delivered robust performance in the past three years. Hence, the premium asked for this issue is justified giving due respect to the visible growth opportunity of the industry in its entirety,” Umesh Mehta, Head of Research, Samco Securities said.

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