Going by the GMP of roughly Rs.350 and an indicative Issue price of Rs.750 SBI Cards is likely to list at a market cap of over Rs.1 Trillion (94 cr shares X 1150). That would make it the most expensive financial services company in India at 19 times P/BV ( at FY20 EBV of Rs.60)
There are multiple triggers to suggest that this valuation can sustain but an IRCTC like performance post listing (4 months on) seems difficult as unlike IRCTC, the management of SBI Cards is leaving little on the table for investors pricing the issue at over 12X book value.
Did you know that Carlyle’s partial exit would value the U.S. buyout firm’s 26% stake at 7 times what it paid in 2017? At even a modest CAGR of 20% over FY20/25 in credit card issuance in India, SBI cards has a lot going for it, but impending risks to its business model remain.
Most people are convinced of an IRCTC like listing for SBI Cards. Of course, they are apples and oranges as far as business is concerned, one is a monopoly while the other exists in a cut-throat competitive environment where the mkt leader is exponentially large and deep-pocketed
In India, the no. of debit cards at 830 mn is about 15X more than the credit cards. While a vast number of them may not be ideal credit card customers there must be a sizeable no. the banks can target. Rajnish Kumar had recently said "it is our wish to eliminate the debit cards"
Since the ratio of Credit card/Debit card is so low in India, the system implies a huge growth potential. However, within digital transactions, the share of credit cards (volume and value both) is consistently coming down from FY17 due to the arrival of UPI/Mobile wallets.
After growing at a CAGR of 23% over FY15/18, per card spend seems to have stagnated between FY18/20. Is it bcause the incremental growth is coming from younger customers /Tier 3-4 cities where spending power is lower? What would be sustainable per card spend growth going forward?
As per data, 86% of SBI card issuance is to the salaried class. With a slowing economy and thus a slowing job/salary growth there could be a delinquency risk as was seen during the Lehman crisis when NPAs for SBI Cards jumped over 16%. Though after 12 yrs they are well insulated.
Being the 2nd-largest player in the Indian credit cards market with nearly 18% market share, healthy financial ratios, supported by strong parentage and most importantly the first company to list from the credit card industry would be major rationales behind solid listing gains.
To conclude, SBI Cards could well be the Superstar IPO of 2020 but at 19X BV (on listing) one has to consider the risks. Remember, even the great Bajaj Finance (not strictly comparable) is available at less than 9 times its book value with similar ROCE and ROAs as of SBI Cards.
With the latest trend of most money chasing few high-quality businesses, SBI card is a prime candidate for exponential listing gains. But be cautious. Happy Investing. Discl: The above information is sourced through several analyst reports, media articles, DRHP and self-analysis.
