SBI CARDS IPO NOTE

Issue Details
Price Band: Rs.750-755, Min. Lot: 19 shares, IPO Size: Rs.10,354 Cr - Rs.500 Cr Fresh Issue & Rs.9,854 Cr Offer
For Sale, Market Cap post issue: Rs.70,891Cr

Company Profile
• SBI Cards and Payment Services Limited is the subsidiary of SBI engaged in credit card services holding 74% stake along with
26% holding of CA Rover Holdings (Carlyle group).
• Commenced its operations in the year 1998, SBI Cards has emerged as India’s second-largest credit card issuer.
• SBI Cards offers a wide variety of credit card portfolio to individual and corporate clients. The portfolio includes four primary SBI
credit cards: SimplySave, SimplyClick, Prime and Elite, each catering to customers on the basis of their eligibility and as per their
needs.
• The company has partnerships with several major players in the travel, fuel, fashion, healthcare and mobility industries, including
Air India, Apollo Hospitals, BPCL, Etihad Guest, Fbb, IRCTC, OLA Money and Yatra, among others.

Investment Thesis
• Top-down, the penetration rate of credit cards in India remains one of the lowest in the world at 3% vs. USA at 320%. This offers
tremendous room for growth.
• Bottom-up: SBI Cards is the largest co-branded (partnering with several fuel, retail and other company outlets) player in India.
• Has a healthy customer sourcing mix with bancassurance contributing 52% of its distribution and a strengthening analytics
platform has boosted open market sourcing as well.
• Market share trend in credit cards has been on the rise, improving from 15.3% in FY17 to 18.1% in 9MFY20, catching up rapidly
with market leader HDFC credit cards.
• In 9MFY20, company has already matched its 12MFY19 top-line and exceeded the bottom-line.
• Thanks to strong parentage, operating ROA as well as ROE has been robust with the company maintaining strong ROEs of 24%+
since FY17.
• Interest income forms majority (51%) of revenues with non-interest income forming 49% as of 9MFY20. Within the pie of the latter,
Transaction Spending (Spend Based Fees) accounts for 22.5%.
• In Transaction Spending, the company earns for its payment services (POS etc.) provided to merchants in the form of MDR
(Merchant Discount Rate) fees.
• The non-interest income exposure within revenues has increased from 43.9% in FY19 to 44.1% in 9MFY20.

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The company demands a trailing 9M-annualized P/E multiple of 45.5x. While non-interest income exposure is on the rise, the
company still earns majority of its top-line from interest income, thus justifying an asset-based valuation. The 9M-annualized P/B
multiple of 14.6x is rich, but warrants the stong growth track record, expectations and macro tailwind of rising digitalization of the
Indian financial sector. Nevertheless, the uncertainty on announcement of an MDR reduction for credit cards overhangs. MDR
reduction talks has been on the rise since demonetization and as of now, has been abolished for select (not all) debit cards only.

Financial Summary

Particulars FY18 FY19 FY20

(Rs mn) 12 M 12 M 9M
Share Capital 7,850 8,372 9,323
Net worth 24,246 36,532 48,228
Operating Revenue 51,870 69,991 68,431
PAT 6,011 8,627 11,612
EPS (Rs) 7.4 9.4 12.45
BVPS (Rs) 29.8 39.9 51.73
ROE (%) 25 24 24

Source: Company RHP