Can SBI cards become next IRCTC ?

Upcoming IPO of SBI cards is in huge demand after stellar run of recently listed PSU IRCTC that delivered 500% return from listing.

I can certainly recall the Reliance power IPO days where even people far away from stock market were discussing about reliance power IPO

In 2017 CA rover holdings has bought 26% of SBI cards for 2000 core i.e. valuing the entire company at 7700 core while it is expected that IPO is coming at a valuation of 70000 Crore. In just 2.5 year valuation of the company has increased 9 times Do you still thing that this IPO will make money for you- My detailed analysis is here -

SBI Cards and Payment services (SBICPS) has been incorporated & started business May 1998, it’s a subsidiary of SBI and is a second largest credit card issuer of the country. SBI cards is registered as a systematically important non deposit taking NBFC.

Before we go into detail i would like to share short video on SBI cards covering following points that are required to analyse an IPO for investment following points.-

  1. About the company and revenue model

  2. Credit card market in India

  3. Growth factors

  4. Financial analysis

  5. Valuation

  6. Risk and

  7. Conclusion

Before we discuss about SBI cards in details let's first understand how credit card companies makes money-

Indicative image for explanation purpose- Do not consider as actual percentage.

Existing shareholding and offering of the IPO-

1. Offer for sale (OFS) for 13.05 crore share including-

  • 3.72 Crore share or 4% by SBI

  • 9.32 Crore share or 10% by CA Rover AND

2. Fresh issue of the share for INR 500 Crore, This will strengthen the company’s capital base.

About the credit card Market in India -

The unsecured loan market size was estimated at INR 5 trillion in FY 19 bifurcation is as below-

  • Credit card consist 22% of total unsecured loan

  • With penetration in small cities and increasing organized retail penetration Credit card outstanding is estimated to grow at fastest pace of 23% CAGR over next 5 year

  • Delinquencies in credit is about 1.5% to 1.8% while interest income

  • Credit card spends In FY 19 was 6 lacs crore and expected to reach at 15 Lacs crore by the end of FY 24

Credit card penetration in India is just 3% compare to 7% of Indonesia and 42% of china-

  • In past 4 year new credit card issuance has increased 10 times to 10% among customers below the age of 25 years

  • Presently HDFC bank is market leader with 1.25 Crore outstanding followed by SBI cards with 83 Lacs outstanding cards.

Credit card market insights-

  • HDFC is the market leader in No of card outstanding as well as average spends and outstanding while SBI cards is second largest player with market share of 18%

  • 5 Year CAGR of no of cards is 23% while credit cards spend is 44%

  • Asset quality is stable with gross NPA of 2.5% as on March 19

  • SBI cards has co- branded cards with IRCTC,BPCL, OLA, Air India and Apollo Hospital

  • Receivables as on 30st Sep2019 is 23038 Crore

  • Average yield is about 21% and NIM is about 15%

  • ROA is 4 to 4.8%

Growth Factors -

  • E-commerce industry in India is growing with a pace of 32% CAGR in past 5 year and is expected to grow at 25% CAGR over next 5 year.

  • E-com industry size was INR 713 bn. In FY 14 in FY 19 it reaches to INR 3000+ bn and expected to cross INR 9000 bn by FY 24. Since Most of the E com companies started accepting Cards payment in COD (cash on delivery) Cards spends likely to be increased.

  • Median age of India is 28 years new credit card origination has shown highest growth in age group of 20-30 years.

  • Organized retail penetration (including E-com) is just 11% and is expected to be about 15% by FY 24

  • With deeper penetration of payment network of PayTM and PhonePay and credit card spends are increasing.

  • Promoter advantage, about 70% of the customers sourcing done by SBI.


Revenue breakup-

Almost 50% revenue comes from interest income. while Fee income is about 44% rest of the revenue comes from service charges and co-payment.

Financial synopsis-


  1. In 2017 GE capital exited from credit card business and sold entire 40% stake in SBI cards to SBI and CA Rover Holdings. CA Rover Holdings bought 26% stake for INR 2000 Crore valuing entire company worth Rs. ~7000 Crore.

  2. Expected post money value of the company is about INR 71000 Crore. I.e. CA Rover holding may get INR 7000 crore for 10% stake valuing their entire stake worth INR 18200 Crore. Its massive 9x return in just 3 years.

With PAT of INR 1043 crore (FY 19) and valuation of about INR 71000, Company is available at earnings multiple of 68 times. On This parameter company looks bit overvalued though there is no peer listed player in Indian market. However revenue CAGR of past 4 year is 27% and PAT CAGR is 40%. This kind of growth along with average 4 year ROE of 31%, NIM of 15.5% and gross NPA of just 2.5% justify the value of the company and makes it a good long term buy. Current grey market premium of the issue is about 300 a share, Thus market is expecting a listing at about 1200 a share.


  • Presently there is a cap on interchange fees on debit card any regulation on limiting interchange fees on credit card will adversely affect the performance of the company. Presently 21% of the total revenue comes from Interchange fees.

  • More than half of the income comes from interest on outstanding ( Revolving and EMI loan) any Regulatory change capping the interest rate will adversely affect the company.

  • Slowdown in economy especially BPO and IT space leads to bulk of default. Earlier Barclays has shut down their credit card business due to economic slowdown

  • Corona virus spread puts global economy at risk. Down Jones has saw sharp fall of 10% in just 3 session. Current global market meltdown is also indicating serious risk. Any negative from here may result in sharp fall.


From financial to growth prospects , asset quality to market size on all parameter SBI card is a good buy. Equialpha has SUBSCRIBE rating on the issue.

Benefit to existing shareholder of SBI- It's subsidiary of SBI and about 10% of the issue is reserved for shareholders of SBI. There is a higher chances of allotment if you are a shareholder of SBI.


Team Equialpha

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