The company aims to grow at around 20% compounded annual growth rate (CAGR) over the next four years, Hardayal Prasad, managing director and CEO, SBI Cards told FE.
The much-anticipated initial public offering (IPO) of SBI Cards and Payment Services, which will open for subscription on March 2, is expected to raise around Rs 9,000 crore. The price band has been set at Rs 700-750 per share. After the listing, analysts expect the firm to become among the most-valued financial services firms.
Currently, HDFC Life Insurance is the most-valued listed financial services firm with a market capitalisation of Rs 1.14 lakh crore, followed by SBI Life Insurance. The second largest credit card issuer’s IPO will include fresh issue of Rs 500 crore and an offer for sale (OFS) of up to 13 crore equity shares, with face value of Rs 10 per share. Parent State Bank of India (SBI), which currently holds 74% in the company, will shed a 4% stake.
The Carlyle Group, which holds the remaining 26% stake, will shed 10% through the IPO. The lot size has been fixed at 19 equity shares with the face value of Rs 10 apiece, and the offer will close on March 5. The company will be listed on the exchanges on March 16. SBI Cards held 17.9% of the market share of the Indian credit card market in terms of total spend in the eight months ended November 30.
The company aims to grow at around 20% compounded annual growth rate (CAGR) over the next four years, Hardayal Prasad, managing director and CEO, SBI Cards told FE. “In the next four years the (industry) growth is going to be 20% upwards. We are also looking at that. We are looking at building infrastructure to support that” Prasad said.
He added the firm will target gross NPA ratio of 2.3-2.5%. Since FY17, the company’s net profit grew by 52.1% CAGR to Rs 862.72 crore in FY19. Total revenues stood at Rs 7,286.8 crore in FY19.Between FY15 and FY19, the bank’s credit card spends have grown by 31% CAGR, and total credit card spends are expected to reach Rs 15 lakh crore by 2024. Delinquencies have also been on the rise.
Prasad said the company was confident regarding managing the risks. “It is an unsecured lending space, obviously it will have some risks associated with it. It is a question of how you manage the risk… the agility with which we respond, how we are able to build limits or pull them back, all these things help us come out with a portfolio management which is much more strong in terms of delinquencies, and you are able to manage it carefully,”
Analysts see high growth potential for the card issuer. “With low credit card penetration in SBI customers (credit card to debit card ratio of 3% vs 31% for private sector banks), strong brand name and distribution, SBI Cards has the potential to grow its card base at around 23% CAGR over the next 5 years, leading to a market share of around 22.5% by FY24,” Ambit Capital said in a note.
However, the macroeconomic challenges remain — risk associated with economic growth, unemployment, interest rate volatility and consumer spending behaviour can “severely impact usage of credit card and in turn credit card business of SBI cards”, another note from KR Choksey said.