The much-awaited initial public offering (IPO) of SBI Cards and Payment Services, a subsidiary of State Bank of India (SBI), will open on March 2, aiming to raise about Rs 9,000 crore.
The SBI Cards IPO comprises a fresh equity issue worth Rs 500 crore and a total dilution of around 14 percent is expected to be done through SBI Cards IPO via an Offer For Sale (OFS) route.
SBI holds 74 percent in SBI Cards and rest of the stake is held by Carlyle Group. While Carlyle is looking to sell a 10 percent stake in the company via IPO, SBI would sell 4 percent.
The share sale is poised to become the fifth-largest IPO in the country after Coal India, Reliance Power, GIC Re and Oil and Natural Gas Corp (ONGC) and will help the parent, SBI, raise funds to boost credit growth.
About the IPO
Price Range :
IPO dates :
Listing : Shares of the company will be listed on BSE and NSE both on or around March 16, according to the red herring prospectus.
Managers: Kotak Mahindra Capital, Axis Capital, BofA Securities, HSBC, Nomura, SBI Capital Markets are the book running lead managers to the issue.
Bid Lot: 19 shares and in multiple thereof.
Issue Size :
The company plans to issue new shares worth Rs 500 crore and will offer up to 13.05 crore shares as an offer for sale, according to the prospectus. This will include up to 37,293,371 share sale by SBI and up to 93,233,427 shares on offer by Carlyle Group.
About the company
The company started operations in 1998 as a joint venture with GE Capital Corp. In December 2017, GE Capital sold its 40 percent stake in the company to SBI and Carlyle.
SBI Cards is the second-largest credit card issuer in the country with 9.46 million credit cards and has an 18 percent share of the Indian credit card market as of September 30, 2019. Meanwhile, 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.
Financials
In FY19, 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.
Brokerage views
As per Ambit Capital , low penetration in SBI customer base plus strong distribution means SBI Cards’ card base can grow at 23 percent CAGR over FY19-24. Increased focus on EMI products can lead to loan book growing at an even faster pace at 46 percent CAGR during this period, it added.
However, growth in fee income could fall given stagnating per card spends, market-share loss to UPI and potential regulatory cap on MDR charges are the major risks, the brokerage noted. Whilst asset quality has held up till now, a slowing economy and job growth can lead to an increase in NPAs, in line with global experience, it cautions.
According to Emkay Global Financial Services , SBI, it has the potential to scale up further, riding the Indian consumers’ increasing predilection for credit cards and higher penetration in its captive bank customers, the brokerage firm said in a note.
Adding, "It also commands a relatively strong RoA of nearly 5.5 percent (normalized in H1FY20), driven by better margins/fees on better revolve rates and contained credit costs, while the benefit of lower tax rate can help return on assets (RoAs) in the near term. However, it needs to focus on improving operating leverage, spends per card via focusing on open market sourced carded/premium customers to drive fees and convert spends into EMIs/Term Loans to bring stability to its otherwise superior margins/RoAs."
