There has been a lot written on SBI cards performance and cards industry in India in general on multiple articles and threads. So, why not add to the noise even though the IPO might be 3-6 months away. So, here a few interesting nuggets (from the DRHP) which I have not seen (1/n)
"Effective from April 1, 2018, SBIBPMSL, amalgamated into our Company. Our Restated Financial Statements for Fiscal 2018 have been restated as if that merger had occurred on December 15, 2017". SBIBPMSL was providing back end payment processing and services to SBI Cards. (2/n)
What is interesting is the date of amalgamation. "The Scheme of Amalgamation was approved by the NCLT, Delhi pursuant to its order dated June 4, 2019. The Scheme of Amalgamation became effective on June 14, 2019, which is the date on which it was filed with the RoC." (3/n)
Share exchange ratio for this entity was quite strange 1:4.04 and 9.5 cr equity shares got added to SBI Cards entity. Of course,the management will call this unit as 'strategic' to the company & hence the merger. But this entity is usually like any other 3rd party processor (4/n)
"We have registered the “SBI Card” logo under the Trademarks Act. We do not own the “SBI” trademark and
currently use the “SBI” logo pursuant to a non-exclusive licensing agreement between us and SBI....." (5/n)
currently use the “SBI” logo pursuant to a non-exclusive licensing agreement between us and SBI....." (5/n)
....Pursuant to the licensing agreement, SBI has permitted us to use certain trademarks registered in favor of SBI such as the “SBI” wordmark and logos part of our corporate or trading name, for which we pay royalty fees of 2% of our net profit or 0.2% of our total income," (6/n)
Quite a reasonable offer. Use our logo, pay us royalty. The one crucial change from a previous IPO - SBI Life Insurance is - the % conditions are exactly the same, but an additional clause exists in SBI Life "....subject to a maximum amount of ₹ 300 million per year". (7/n)
No such clause added here (surprising, with Carlyle on board). So, if SBI Cards does get to do 2000 cr PAT in the next 4-5 years and more, it's a step-sisterly treatment compared to SBI Life Insurance which has a max. cap. (8/n)
Can Carlyle sell any time? Well, the SHA between SBI and Carlyle states "SBI and CA
Rover (Carlyle's parent group) have certain restrictions on transfer of Equity Shares held by them and non-disclosure of information and intellectual property rights", but follows up with...(9/n)
Rover (Carlyle's parent group) have certain restrictions on transfer of Equity Shares held by them and non-disclosure of information and intellectual property rights", but follows up with...(9/n)
"The SHA shall automatically lapse and terminate on commencement of trading of the Equity Shares of the Company pursuant to an initial public offering by the Company.". So,based on the clauses, looks like Carlyle doesn't have any lock-in restrictions to sell (10/n)
The DRHP was filed on Nov 26,2019. However, very strangely, there is this line "Bank Distribution Agreement dated November 20,2019 between SBI and the Company". I mean, a new agreement just 6 days before DRHP. This is for SBI cards to use some part of SBI branch facilities (11/n)
"Pursuant to the Bank Distribution Agreement, the Company is required to pay a commission to SBI at rates mutually agreed between the Company and SBI." No % rates are given, but hope standard rates. Just very strange that they had to sign on Nov 20 and not earlier (12/n)
The spend-based fees (interchange) increased 40% between H1 2018 (712 cr) to H1 2019 (997 cr). Why such a a drastic increase,apart from increase in no. of cards? Well, "total credit card spends and changes in industry level interchange fee billing arrangements among...." (13/n)
"..the payment networks, acquirers & credit card issuers in India, which resulted in a more favorable interchange fee structure". I can't find any public info around this. So,35% increase in number of credit cards (not of all which might be active) and 40% incr. in revenue (14/n)
That's a pretty steep favorable interchange fee structure. Would be good to probe the mgmt on this when they have their Analyst meets & see on what basis is this so favorable. Debit card interchange is fixed and regulated, so I don't think much is hppning here,should be CC (15/n)
Other income bumped up by 161 cr (which works to 120 cr PAT) in FY19. What constituted such huge other income? "primarily due to a revision in our actuarial valuations for reward point redemptions and expiry rates estimates". Ok,Tharoor. Discount by 120 cr PAT as one-time (16/n)
Impairment&bad debt losses moved from 525 cr to 725 cr, a 40% jump. But why? "921.4 million accelerated write-off in H1 FY20 as a result of financial difficulties faced by one of our corporate customers". Whoa.Back up, back up. What 'corporate customers'? We thought it was retail
A 54 cr business development incentive income. And what's that? "which resulted in us meeting our incentive targets under our business development incentive agreements with the payment networks." Just to be aware of different levers and one-times and recurrings of revenue segment
On bad debts "3,361.35 million, or 56.2%, increase in bad debts written off resulting from higher credit stress in certain portfolio segments observed in fiscal 2018". Just the start, do you think? (19/n)
Lastly, 850 cr PAT in FY19. 850 cr PAT in H1 FY20. Even ignoring the one-time 120 cr PAT due to some fancy actuarials, I am pretty sure that our overall income levels have not moved up so much to get 2x PAT in 1 year. Write-offs will come. How big and when - not sure (20/n)
IPO sprucing going on. Folks calculations say 1700 cr PAT (arey, festival season - so more PAT in H2 etc.) and 57000 cr valuation 33x for a 30% grower with 35% RoE. Aur kya chaiye life mein. Well, foot notes chaiye life mein. The End. (n/n -> infinity)
