SBI Cards set to launch Rs 9,500-cr IPO this month, subject to Sebi nod

SBI Cards and Payment Services, the credit card arm of State Bank of India (SBI), is set to hit the market with its initial public offering (IPO) this month if it gets the nod from the Securities and Exchange Board of India (Sebi), the regulator.


The company, which filed its offer document with the regulator in November, is expected to get Sebi’s observation letter soon, said people in the know.


The company is targeting a mop-up of Rs 9,000-9,500 crore from the share sale, with a fresh issue size of around Rs 500 crore.


The issue will comprise an offer for sale of about 131 million shares of existing shareholders SBI and CA Rover.


“Sebi observations are expected in the next few days. Overseas roadshows are done and we have seen an overwhelming demand from investors. The intent is to do the IPO this month,” said an investment banker familiar with the matter.


SBI owns 74 per cent in the company and the rest is owned by CA Rover, controlled by Carlyle Group. Before December 2017, SBI had a 60 per cent stake with GE Capital owning the remaining 40 per cent.


In December 2017, GE Capital exited the company. After this, SBI increased its stake to 74 per cent while CA Rover bought the remaining 26 per cent.


“This is the only standalone card business which is going to be listed and has the potential to generate superior RoE (return on equity).


The market is underpenetrated and we are expecting significant growth in the business. With the backing of SBI there is a strong case for reaching out to the untapped segment as well,” said the banker quoted above.


Brokerage Ambit Capital considers strong parentage and a good distribution network among the company’s strengths and over-dependence on co-branded partners and an unsecured portfolio as weaknesses.


“Banks have become more competitive in this space. Other modes of payments like mobile, UPIs are also able to attract large volumes. This can put both margin and growth pressure on the company if not countered well,” said a research note by the brokerage.


SBI Cards, the biggest credit card issuer in India after HDFC Bank, had an 18 per cent market share in outstanding credit cards at the end of September 2019 and 17-18 per cent share in the number of credit card transactions/value of credit card transactions in the first half of FY20. Its market share on most of these parameters has increased over the years.


In the last three financial years, the company’s spend on cards has increased 54.2 per cent annually.


The company generates its revenue from fee-based income such as interchange fees, late fees, and annual fees. The share of revenue from non-interest income has steadily increased over the past three financial years, from 43.6 per cent in 2016-17 to 48.9 per cent in 2018-19. In FY19, SBI Cards had posted a net profit of Rs 862 crore on revenues of nearly Rs 7,000 crore.


The IPO is being handled by Kotak Mahindra Capital, Axis Capital, Bank of America Merrill Lynch, HSBC, Nomura, and SBI Capital.

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