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  5. SBI Cards IPO is open to investors ⁠— India's second largest credit card seller is hot even before its market debut

SBI Cards IPO is open to investors ⁠— India's second largest credit card seller is hot even before its market debut

SBI Cards IPO is open to investors ⁠— India's second largest credit card seller is hot even before its market debut
Stock Market3 min read
  • SBI Cards and Payment Services will sell shares in the upcoming initial public offering (IPO) opens today and will go on till March 5.
  • The shares will be priced between ₹750 to ₹755 a piece and it is expected to be the first blockbuster IPO this year.
  • institutional investors who are offered shares before the IPO opens pumped in nearly $400 million in the company, which has nearly a fifth of the country's credit card market.
SBI Cards and Payment Services will sell shares in the upcoming initial public offering (IPO) opens today and will go on till March 5. The shares will be priced between ₹750 to ₹755 a piece and it is expected to be the first blockbuster IPO this year.

SBI Cards has raised 2,769 crore (nearly $400 million) from 74 anchor investors, including the Singapore government, the Monetary Authority of Singapore, HDFC Mutual Fund, Government Pension Fund Global, and Birla Mutual Fund. Anchor investors are institutional investors who are offered shares before the IPO opens.

At the price set, the stock may beat 16 Nifty companies⁠— the likes of Mahindra & Mahindra, Eicher Motors, Tata Motors, Hero MotoCorp, Hindalco, Bharti Infratel, Cipla, and Zee Entertainment⁠— in market value at the time of listing, according to one estimate. Is the craze over a credit card seller justified.

These are some details about SBI Cards that you must know to make sense of the frenzy.

The industry

In the four years ending March 2019, credit card spends in India have grown at a high compounded rate of 32% and yet, there are only four cards for every hundred persons in India. That’s an abysmally low and the penetration level can only go up from here.
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It is expected that the total credit card spends would exceed ₹15 lakh crore (over $200 billion) in the next five years. And SBI Cards can corner a huge chunk of this market waiting to explode.

Competition

India’s credit card market is controlled by four companies⁠— HDFC Bank, SBI Cards, ICICI Bank, and Axis Bank in the descending order of market share⁠— who together control two-thirds of all credit card debt.

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Policies and other enablers

The Narendra Modi government has been in favour of non-cash transactions and that is a big advantage for companies like SBI Cards. “Specially e-commerce industry has helped the growth of credit card usage and spending in India which is expected to grow in near future will boost the growth of credit cards as well,” a report from KR Choksey Securities explained.

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The company— who owns it, what it sells and how it makes the money

India’s largest bank, the government-owned State Bank of India, owns 74% stake along with CA Rover Holdings (the Carlyle group) owning the remaining 26%. SBI Cards has been in business since 1998 and is now, the second largest credit card issuer in the country with a market share of 18%.

SBI Cards offers a wide variety of credit cards to individual and corporate clients. The portfolio includes four primary SBI credit cards: SimplySave, SimplyClick, Prime and Elite.

  1. SBI cards derives more than 50% of income from interest and 44% of income as fee as on FY19.
  2. Two-thirds of the loan portfolio book is interest paying and equated monthly installments (EMI).
  3. Customers holding credit cards pay Annual Maintenance charges (AMC) ranging from ₹500 to ₹5,000.
  4. The net interest margin is about 15% and on EMIs, SBI Cards makes 21% to 22% margin.
  5. Credit card sellers make more money on foreign spends but currently, for SBI Cards, only 2% to 2.5% of the customers' spends are overseas. It wants to increase that.
  6. SBI cards is co branding with Future group, Air India, Vistara, Yatra where customers get discount for spending on SBI cards which will induce the card holder to spend more.
  7. The company has installed 51 robots working at different check point of data analytics with source code oriented software, according to the DRHP. Currently 500 employees are working in IT division and they were able to avert attempt cyber attacks recently.
  8. The software installed at the key terminals has the capacity to manage 3x to 5x volumes than current levels there by reducing the fraud by 50%.
"The Key risk to the business model is that credit card business is an unregulated one and treated as unsecured loans. Any interference by the regulator might dent the business and revenues might be at risk," the KR Choksey report said.

SEE ALSO:
SBI Card finalises IPO price band at ₹750-₹755 per share

In India, you can't buy mutual funds from your investment advisor anymore

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