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SBI Cards and Payments Pre-IPO - Ticks a lot of boxes

SBI Cards (SBIC) plans to raise up to US$1.5bn via selling a mix of primary and secondary shares in its Indian IPO. SBIC is a subsidiary of SBI, India’s largest commercial bank. Prior to listing, it was 74% owned by SBI with Carlyle, a private equity firm, owning the balance 26%. SBI Cards (SBIC) is the second-largest credit card issuer in India, with an 18% market share in terms of the number of credit cards outstanding and 17.9% market share in terms of total credit cards spending, as of six months ending Sep 2019. As of Sep 2019, SBIC had 9.46m credit cards outstanding.

Over FY17-FY19, SBIC’s revenue grew at 45% CAGR, while PAT grew at 52% CAGR. Earnings and loan growth has primarily been driven by an increase in the number of cards outstanding. These have grown at 34.5% CAGR over FY17-19. However, there are some negative aspects of the company as well. All the growth in revenue since at least FY18 appears to have been driven by the acquisition of new customers, as the spending and usage by existing customers appears to have flatlined. Also, the NPAs are actually a lot higher than what is reported at year-end as SBIC appears to be writing off a lot of the bad loans during the year.

While none of these negative aspects are likely to be a hurdle for the deal, the valuation might end up being one as Carlyle paid a lot less to acquire its stake just over two years ago.