SBI Cards IPO: A Complete Overview

After stellar gains from the likes of D-Mart and IRCTC, markets seem to be excited again for another much awaited Initial Public Offering from a well-renowned subsidiary of State Bank of India: SBI Cards and Payment Services.


SBI Cards & Payment Services (SBI Cards) is the leading issuer of credit cards in India. Incorporated in October 1998 as a joint venture between State Bank of India, India’s largest commercial bank in terms of deposits, advances and the number of branches and GE Capital. Later in December 2017 State Bank of India and Carlyle Group acquired GE Capital’s stake in the company.

The company offers Indian consumers access to a wide range of world-class, value added payment products and services. At present SBI Cards operates through a footprint of over 130 cities in India.

It is the second-largest credit card issuer in India, with a 17.6% and 18.1% market share of the Indian credit card market in terms of the number of credit cards outstanding as of March 31, 2019 and November 30, 2019, respectively, and a 17.1% and 17.9% market share of the Indian credit card market in terms of total credit card spends in fiscal 2019 and in the eight months ended November 30, 2019, respectively, according to the RBI

Issue Details

  • Date of Opening: 02nd March 2020
  • Date of Closing: 05th March 2020
  • Total number of Shares offered (Cr): 13.71
  • Post Issue Number of shares (Cr): 93.89
  • Price Band: ₹ 750- 755
  • Face Value: ₹ 10
  • Bid Lot: 19 shares
  • Minimum application for retail (Upper price band for 1 lot): ₹ 14,345
  • Maximum application for retail (Upper price band for 13 lot): ₹ 186,485
  • Listing: BSE & NSE

SBI Cards shares are proposed to be listed both on the BSE and NSE. The listing of shares is expected to happen on 16th March. Investors can invest in the IPO through their respective brokers or through the BHIP UPI application.

The Good

Let’s see some positives of SBI Cards that makes it a good target for long-term investment.

  • Low penetration
    • Credit card penetration in India is very low compared to other developed countries. For example, in the US there are 300 credit cards per 100 people. Whereas in India, that number stands at 3 per 100 people.
    • This exposes the huge opportunity for the industry to grow and expand in the coming years.
  • Growth opportunity without Capital
    • A salient feature of the credit card industry is the ability to grow without the need for much capital. Since it’s a tech based financial service, they could easily accommodate additional customers.
  • Only listed card company
    • At the time of listing, SBI Cards will be the only listed company in the credit card sector. Investors aiming to benefit out of the growing sector will be left without much option.
  • Demographic Dividend
    • In the coming years, India will have the youngest working population in the world. This huge number of working population willing to spend is a boon for the credit card sector. You can read more about demographic dividends here.
  • Budget encouraging spending
    • In the latest budget, there has been a tonal shift to encourage people to spend more rather than saving. Such a move is positive for credit cards.
  • Growth of E-Commerce
    • Another area which have been playing a significant role in the boost for adoption of credit cards is E-Commerce. Ease of purchase and better payment terms in websites such as Amazon and Flipkart clubbed with Zero percent EMI should be seen as an accelerator.

Raamdeo Agarwal, MD Motilal Oswal and veteran investor in fact rates SBI Cards as a “lethal combination of quality and growth”

The Bad

Risks are an indispensable part of running a business. SBI Cards too face certain risks, some of them are highlighted below.

  • Dependent on SBI
    • Though a boon and a bane, the card subsidiary depends on the promoter group SBI heavily. And, any risks affecting SBI may impact SBI Cards badly in the future.
  • Competition from UPI and other credit card companies
    • Something that recently gained traction is Digital Payments. The fact that the Unified Payment Interface makes it very easy to do online transactions may deter customers away from credit cards. Also, competition from other leading credit card issuers such as HDFC, ICICI and Axis Bank must not be ignored.
  • Heavily regulated
    • SBI Cards being an NBFC, it is subjected heavily to regulation by RBI in areas such as interest rates, interchange fees, etc.
  • Working with co-brand partners
    • One of the primary reasons people use credit cards is because of their association with co-brand partners. SBI Cards have positive tieups with partners such as Amazon, IRCTC, Ola, Tata. However, any deviation from such partners in future might pull back customers.
  • Seasonality
    • The thing with consumer spending in India is that, its seasonal. People spend more during festivities such as Onam, Diwali, and business might not be as strong during the other periods in comparison.

The Ugly

Here are some of the biggest drawbacks considering investing in the IPO of SBI Cards:

  • Lack of collaterals
    • Since the company deals with unsecured loans, the inability to recollect unpaid debt from customers might turn out to be a big issue.
  • Ugly timing?
    • The IPO comes at a stage where markets are heavily bleeding on account of Corona Virus’s fears. Markets have already been corrected by around 10% from all time heights. Reduced investor sentiments may play spoil sport for anyone expecting huge listing gains. However, this is only a short-term factor and might not impact investors going forward.

SBI Cards: Ratios and Valuation

The key ratios and valuation multiples for FY20 (9M) are as below:

  • Earnings per share, EPS: ₹ 12.5
  • Book Value. BV: ₹ 51
  • Return on Equity, RoE: 27.9%
  • Return on Assets, RoA: 5%
  • Price to Earnings, P/E: 61x (46x if annualized)
  • Price to Book, P/BV: 14.8x
  • Revenue growth FY 17-19: 44.6%
  • PAT growth FY 17-19: 51.2%

Though the valuation seems expensive at the current multiples, the fact that the company holds a moat in the sector it’s in and the growth the company has achieved, it seems like a safe bet. Similar international companies such as Visa and Mastercard having delivered 832% and 1350% returns over a 10-year period also adds to the confidence.

Final thoughts

Given the opportunity, growth prospectus and being a relatively untapped sector, I personally believe that SBI Cards is a hold for the long term. However, given the strong grey market demand seen for the IPO, short-term players can go for booking listing gains and possibly re-entering at a lower price if interested.

Disclaimer: I am not a financial planner or investment advisor. The contents of this blog are purely for educational purposes and should not be taken as financial advice.

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