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Review By Rudra Shares & Stock Brokers Ltd on February 27, 2020

THE OFFER

    Issue Open : 02nd March 2020 to 05th March 2020

  »»  Issue Type:  Book Built Issue IPO

    »»  Total Issue Size:  RS 10,354.77 cr

           Fresh issue:    6,622,517 Equity Shares @ 10 aggregating up to Rs 500 cr

           Offer for sale: 130,526,798 Equity Shares @ 10 aggregating up to Rs 9854.77

    »»  Face Value:  Rs 10 Per Equity Share 

  »»  Issue Price:  Rs 750  -Rs 755 Per Equity Share 

       »»  Employee Discount: Rs75 Per Equity Share

  »»  Market Lot:  19 Shares 

  »»  Minimum Order Quantity:  19 Shares 

  »»  Listing At:   NSE & BSE

CAPITAL STRUCTURE

The  share capital of Company, is set forth below:-

                                                                                                                   (Amount in Rs except share data)

Authorized Share Capital :-

 1,500,000,000 Equity Shares @10 Aggregate value Rs 15,000,000,000

Issued, subscribed and paid up capital before the Offer :-

   932,334,278 Equity Shares @10 Aggregate value Rs 9,323,342,780

Fresh Issue:-

6,622,517 Equity Shares @ 10 aggregating up to Rs 500 cr

OBJECT OF THE OFFER

The objects of the Offer are:

?To utilize the Net Proceeds from the Issue towards augmenting capital base to meet future capital requirements.

?To achieve the benefit of listing the equity shares on the Stock Exchanges.

?Means of Finance

COMPANY OVERVIEW

Incorporated in 1998, SBI Cards and Payment Services Limited is a subsidiary of SBI, India's largest commercial bank in terms of deposits, advances and the number of branches. SBI currently holds (along with its nominees) 689,927,363 Equity Shares, constituting to 74.00 % of the pre-Offer issued, subscribed and paid-up Equity Share capital of the Company. Post the stake sale, SBI will hold a 63.55 % stake in the company and is expected to strengthen its Tier I ratio by 37 bps.

SBI Cards is the second-largest credit card issuer in India (behind leader HDFC bank) with credit card base and credit card spends capturing 18.1% and 17.9% market share in the respective categories, as of November 2019. With remarkable growth & profitability, the total credit card spends & credit cards outstanding grew at a CAGR of 34.5% & 54.2% (March 2017 to March 2019).

It has 18 co-branded partnerships, the highest in the industry compared to other players, followed by ICICI Bank at 12 and RBL Bank at 8. Also, as SBI Card is supported by strong brand, provides access to SBI's extensive branch network (21,961 branches) across India, which enables to market its cards to SBI's vast customer base comprising 445.5 million customers as of  December 2019.

⇒ Partnership with SBI in particular has the potential to become a significant source of new customer acquisitions in the future.

⇒ SBI Cards has partnered with leading brands across industries including Air India, Apollo Hospitals, BPCL, Etihad Guest, Fbb, IRCTC, OLA Money and Yatra, amongst others.

⇒ Launched 6 new products in nine months ended December 31, 2019, as compared to 4 new products in fiscal 2019 and 6-7 new products in fiscals 2018 and 2017, respectively.

COMPETITIVE SCENARIO IN CREDIT CARD INDUSTRY

⇒ Concentrated market - top 4 players account for two-third of credit card spends :

There are a total of 74 players offering credit cards in India, with the top three private banks (HDFC Bank, Axis Bank and ICICI Bank) and SBI Card, as the leading pure-play credit card issuer, dominating the credit card business with a total of approximately 72.0% market share by number of outstanding credit cards as of March 2019 and approximately 66.0% market share by credit card spends in FY 2019. According to CRISIL, top players, such as HDFC, SBI Card, ICICI and Axis Bank, are expected to continue to account for approximately 70.0% market share of overall credit card outstanding as of FY 2020.

⇒ SBI Card has the highest market share in terms of incremental cards in force across different periods:

SBI Card has the highest market share in terms of incremental cards in force across different time periods with 45.0% market share in the last one month (1M), 27.0% in the past six months (6M) and approximately 23.0% in the past 12 months (12M), 24 months (24M) and 36 months (36M) from July 2019. SBI Card has been able to continuously gain market share in terms of incremental cards in force in the industry over the years. This is followed by ICICI Bank which grew at a similar pace to that of SBI Card.

STRATEGIES  AHEAD

⇒ Stimulate growth in credit card transaction volumes

?⇒ Expand customer acquisition capabilities to grow cardholder base

?⇒ Tap into new cardholder segments by broadening portfolio of credit card products

?⇒ Continue to optimize risk management processes

?⇒ Continue leveraging technology across operations

?⇒ Enhance cardholder experience

STRENGTHS

⇒ Supported by a strong brand and pre-eminent Promoter

?⇒ Second largest credit card issuer in India with deep industry expertise and a demonstrated track record of growth and profitability

?⇒ Diversified customer acquisition capabilities

⇒? Diversified portfolio of credit card offerings

?⇒ Leading player in open market customer acquisitions using physical and digital channels in India.

?⇒ Modern and scalable technology infrastructure

?⇒ Has the highest market share in terms of incremental cards in force across different periods

FINANCIAL HIGHLIGHTS

Diversified revenue model whereby it generate both non-interest income as well as interest income on credit card receivables. The share of revenue from operations derived from non-interest income has steadily increased over past three fiscal years, from 43.6% in FY 2017 to 48.9% in FY 2019. 

⇒ Total income increased from Rs 3471.03 Cr. in FY 2017 to Rs 7286.83 Cr. in FY 2019 at a CAGR of 44.9% and revenues from operations have increased from Rs 3346.20 Cr in FY 2017 to  Rs 6999.11 Cr. in FY 2019 at a CAGR of 44.6%.

⇒ Net profit increased from Rs 372.86 Cr. in FY 2017 to Rs 862.72 Cr. in FY 2019 at a CAGR of 52.1%.

⇒ Average EPS in last 3 years is Rs 7.97 and in FY2019 at Rs 9.43. For 9 months ended Dec-2019, EPS stood  at Rs 12.45.

⇒ Company has been maintaining an ROE of over 25% , stood at 30% in FY19, 32.40 % in FY18 and 28.60% in FY 17

⇒ NII increased nearly 25% Y-o-Y to Rs 2558.50 crores in FY 19 compared to Rs 1359.72 crores and Rs 2048.46 crores in FY 17 & FY 18 respectively

⇒ Total assets stood at Rs 25993.46 crore as at December 2019 and  Rs 20239.63 as on March 2019.

⇒ Net worth of the company jumped 147 % to Rs 3,581.72 crore in FY19 over Rs 1,448.81 crore in FY17.

⇒ Pre-provision operating profit increased 9.74 % to Rs 2,720.70 crore for the nine-month ended December 2019 as against Rs 2,479.30 crore and Rs 17,194 crore in FY19 and FY18, respectively. 

⇒ ROAE has remained stable at 28.5% in FY 2017 and 28.4% in FY 2019, while ROAA increased from 4.0% in FY 2017 to 4.8% in FY2019.

⇒ Interest on revolving credit card balances and monthly installment balances comprised 51.7% and 51.0% of  total revenue from operations in the nine months ended December 31, 2018 and 2019 , respectively, as compared to 51.1% in FY2019, 53.2% in FY2018 and 56.4% in FY 2017.

⇒ As of December 31, 2019, and March 31, 2019, cash and bank balances were Rs 5,07.77 Cr. and Rs 7,76.77 Cr., respectively. As of December 31, 2019, and March 31, 2019, undrawn borrowing facilities totaled at Rs 21,97.75 Cr and Rs 3682.63 Cr., respectively.

⇒ Gross NPA during the first nine months of FY20 was at 2.47 % while net NPA was at 0.83 %.

RISK FACTORS

⇒ Face competition in the credit card market from other credit card issuers and payment solutions providers

⇒ Face huge competition from banks, NBFCs, and payment banks.

⇒ Any loss/reduction in level of support from promoter (SBI) and 100 % unsecured lending with no collateral could have adversely impact on company

⇒ Dependency on third-party payment networks to operate credit card business.

⇒ Growth depends on ability to retain existing co-brand partners and attract new co-brand partners.