Most Awaited: SBI CARDS IPO

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Most Awaited: SBI CARDS IPO

Click here to know >>> SBI Cards IPO listing – HIGH hopes but low on DEBUT??

Click here to know >>> Fundamental analysis & future prospects post the SBI Card IPO

 

About IPO

The State Bank of India subsidiary, SBI Card plans to raise around Rs 9600 crore through IPO in the current quarter (Q4FY20) The IPO will comprise of:


Offer for sale 

As per DRHP( DRAFT RED HERRING PROSPECTUS) 130,526,798 equity shares are offered via offer for sale route by SBI and 93,233,427 shares on offer by Carlyle group. These proceeds will go to SBI bank and Carlyle Group respectively.

Fresh Issue

 Rs 500 crores shares are offered as a fresh issue of equity shares. This fresh issue includes 1,864,669 equity shares reserved for SBI employees and 13,052,680 equity shares are reserved for SBI shareholders. The net proceeds from the fresh issue are proposed to be utilized to meet the future capital requirements.

> A brief analysis of how current negative sentiments in the market will impact this IPO

Book running lead managers

Kotak Mahindra Capital, Axis Capital, DSP Meryll Lynch, Nomura Financial Advisory, HSBC Securities, and SBI Capital markets will be the book running lead managers of the IPO.

Once it becomes available for subscription, the IPO would be listed both at NSE and BSE. The face value of the share would be Rs 10 per equity shares.

BACKGROUND

SBI Card was launched in October 1998 by SBI Bank and GE Capital. However, SBI and the Carlyle Group acquired GE Capital’s stake in Dec. 2017. Currently, SBI holds 74% and rest 26% is owned by Carlyle. It was converted into a public limited company in Aug. 2019 and is headquartered in Gurugram, Haryana.

BUSINESS PROFILE

Being the second-largest credit card issuer in India, it enjoys a customer base of 9 million with an 18% market share as on March 2019 (HDFC being first with 27% share). It has INR 20457 crores outstanding as net receivables. It is the only company focused entirely on credit cards business unlike other issuers like ICICI, HDFC which have their credit card operations as part of the banking business. However, it also increases the risk for SBI cards from defaults by individuals.

The company strongly benefits from the managerial and financial support from SBI and also benefits from the large clientele of SBI itself.

SBI card offers a wide portfolio of SBI branded cards which are Simply Save, Simply Click, Prime and Elite. It is also the largest co-branded credit card issuer in India and have partnerships with Apollo hospitals, Air India, Etihad, and several others.

FINANCIAL PROFILE

Revenue for the company has increased by 36% in the yr 2019 to 7286 crores (5370 crores in yr 2018).Net profit after tax has increased to 865 crores in yr ended March 2019 from 604 crores in yr 2018 showing an increase of 43%.  The company has earned net income of 726 crores against revenue of 4677 crores for half yr 30th Sept 2019.

Also, the return on assets has remained consistent over two yrs at approximately 5%. Return on equity has remained largely between 22- 25% since last two years.


The key financials can be seen in the table below

 Particulars

Q2 FY’20FY’19FY’18FY’17
Total Revenue (Rs. in crores)

4,677

7,2865,370

3,471

Profit After Tax (Rs. in crores)

726

865604

371

Total Assets (Rs. in crores)

24,459

20,23915,68610,765

 

Strengths

Strong business performance of the company with the second-largest market share.Strengths

  • SBI cards is the only company that focuses entirely on the credit card issuance business.
  • Robust revenue and net profits in the last three years.
  • Increasing credit card usage in the economy as the economy develops.

 

Weaknesses

  • A credit card company faces the risk of default by individuals, in the form of unsecured credit to the individuals

 

OUTLOOK

 The use of credit cards is expanding in the country with a circulation of credit card increasing to 48.9 million in May from 38.6 million (27%rise) in the last year. The total transaction value on credit cards has also gone up to 6 lakh crores in 2018-19 from 4.6 lakh crores in 2017-18 ( as per RBI data). This shows that the credit card industry in India has a substantial avenue for growth because of the low penetration of credit cards in the country which is again a positive for SBI Card. Also, SBI Card is growing by bringing in innovative products, co-branded partnerships, and cashback programs. Tapping the SBI customers for new card acquisitions lowers the credit risk, enhancing the credibility of the portfolio. Hence investors might keep this IPO under lens for cashing in on the opportunity.

> Complete details of risk attached to subscription of SBI Card IPO



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CA Priyanka Choudhary Jain
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