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SBI Cards IPO: Here's a look at the company's strengths and weaknesses 

SBI Cards IPO: Here's a look at the company's strengths and weaknesses 

SBI Cards IPO: Here's a look at the company's strengths and weaknesses 
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By CNBC-TV18 Feb 26, 2020 1:03:12 PM IST (Updated)

The IPO comprises a fresh equity issue worth Rs 500 crore and an offer for sale of up to 130,526,798 equity shares. This will include up to 37,293,371 share sale by the State Bank of India (SBI) and up to 93,233,427 shares on offer by Carlyle Group.

The Initial Public Offering (IPO) of the second-largest credit card issuer in India, SBI Cards and Payment Services Ltd (SBI Cards), will be open for subscription on March 2 and close on March 5.

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At a price range of Rs 750-755 per share, the SBI Cards IPO is expected to raise around Rs 9,000 crore.
SBI holds 74 percent in SBI Cards and the rest of the stake is held by Carlyle Group.
The IPO comprises a fresh equity issue worth Rs 500 crore and an offer for sale of up to 130,526,798 equity shares. This will include up to 37,293,371 share sale by the State Bank of India (SBI) and up to 93,233,427 shares on offer by Carlyle Group.
Post the stake sale, SBI will hold a 63.55 percent stake in the company and is expected to strengthen its Tier I ratio by 37 bps.
Strengths
SBI Cards enjoys an 18 percent share of the Indian credit card market with 9.46 million credit cards as of September 30, 2019.
HDFC Bank has the largest credit card business in the country with 13.3 million cards issued, while ICICI Bank stood third with 7.9 million credit cards, as of September 30, 2019, according to data from the Reserve Bank of India.
The company’s diversified customer acquisition and credit card offerings along with co-branding is a positive factor. Its 95-97 percent of cards are charged fees, unlike peers which give some of the cards for free.
Weaknesses 
However, the company’s over-dependence on SBI and 100 percent unsecured lending with no collateral may have an adverse impact on the business.
Further, the MDR (Merchant discount rate) is a big challenge to the company and any regulatory changes in MDR can disrupt the entire business model of SBI cards.
Meanwhile, corporate NPAs in a slowing down economy also pose a threat.
The company remains vulnerable to risks arising from the failure of adequate adhering by employees and faces huge competition from banks, NBFCs, and payment banks.
However, India being an under-penetrated market in terms of credit card usage and the government’s focus on digital transactions provide opportunities for the growth of the company’s business.
The company is expected to focus on Tier II, Tier III and smaller cities gaining growth opportunities from SBI and its customer base provides.
SBI Cards had posted a net profit of Rs 862 crore on revenues of nearly Rs 7,000 crore. For the six months to September, SBI Cards reported a revenue jump of 36 percent to Rs 4,363.9 crore from a year ago. Its profit jumped 78 percent to Rs 1,034.58 crore during the period.
For 9MFY20, the total assets of the company grew by 36.1 percent to Rs 25,993.5 crore vs Rs 19,098.7 crore, YoY. Total loan growth was 38.8 percent at Rs 23,933.2 crore versus Rs 17,240.4 crore, YoY.
Gross NPA during the first nine months of FY20 was at 2.47 percent as compared to 2.44 percent in FY19 while net NPA was at 0.83 percent versus 0.94 percent in FY19.
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