SBI Cards Forthcoming IPO To Be Value Accretive For SBI


State Bank of India, the country’s largest commercial bank, is considering to sell up to 4% in its credit card venture, SBI Cards and Payment Services Limited (SBI Card), through an initial public offering (IPO) under the offer-for-sale route.

SBI holds 74% in the credit card venture, while the remaining 26% is with Carlyle Group. Around 3.73 crore equity shares are proposed to be offered in the upcoming IPO, which is likely to hit the markets early next year which is likely to be around Rs.9000 crore.

SBI Card, which is the second-largest credit card issuer, recently crossed a new milestone with its cards-in-force (CIF), crossing the 90-lakh-mark. It increased from 60 lakh to 90 lakh in 1.6 years.

CIF is a financial term that represents the number of cards issued and outstanding. In a span of eighteen months (from February 2018 to July 2019), SBI Card added 30 lakh credit cards to its overall credit card base. SBI Card’s growth in spends stood at around 35% year-on-year in FY2019. This was higher than the industry benchmark of 31%

As per the RBI, as of March 2019, SBI Cards was ranked second behind market leader HDFC Bank, with the credit card base and credit card spends capturing 17.6% and 17.1% market share in the respective categories.

Besides the corporate office and registered office, it has 14 branches across the country. SBI Cards had a credit card base of about 8.27 million as of March 2019, clocking a growth of 32.2% on March 2018’s base of 6.26 million.

Annual spends on its credit cards (excluding cross-sell) stood at Rs.1,03,170 crore an increase of 35% SBI Cards has products catering to multiple segments, ranging from Simply Save credit card for the masses, Simply Click for the online savvy, Elite and Prime products for the affluent and Doctors Card for medical practitioners.

It has co-branded cards in segments like travel (Etihad, IRCTC, Air-India), e-commerce (Yatra, OLA), lifestyle (Central, Tata and FBB), healthcare (Apollo), fuel (Bharat Petroleum), metro (Chennai, Mumbai) and banking partnerships (Oriental Bank of Commerce, Bank of Maharashtra, Lakshmi Vilas Bank, Federal Bank, South Indian Bank, Karnataka Bank, Allahabad Bank and Karur Vysya Bank). SBI and the merchant bankers and law firms were unavailable for immediate comment.

SBI Cards is looking to deliver a profit of Rs 2,000 crore for the year ending March 2020 compared with Rs 727 crore in the first six months of the ongoing fiscal.

Also out of its 4.4 crore customers, few have products of its subsidiaries (SBI Life, SBI Card, SBI Funds, SBI General), and there is a large scope to raise the penetration levels going ahead.

What does this mean for SBI Shareholders?
SBI Cards’ is looking to raise around Rs.8,000-9,000 crore and is likely to divest a 14% stake which means the entire card business will be worth around 64000 crores. Brokerages have assigned an average value of Rs 18 per share for SBI Card based on parent SBI’s sum of the parts valuation.

That would value at around Rs unit at 24,200 crores. In most likelihood, we expect a good 20% premium on listing for the SBI Cards stock post it’s listing which will further enhance the SOTP for SBI which remains the parent company