SBI Cards and Payments Pre-IPO - Valuations - a tale of two revenue streams
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. SBIC had 9.46m credit cards outstanding.
In my earlier note, I looked at the company’s past performance and highlighted its rapid earnings and loan growth and also the lack of increase in the average card spending and usage. You can find more details in, SBI Cards and Payments Pre-IPO - A beneficiary of rising discretionary and non-cash spending.
In this note, I’ll look at valuing the company by means of splitting its earnings across its two different revenue streams. One driven by its lending operations and the other by its strong fee income franchise.
State Bank of India provides a range of products and services to personal, commercial enterprises, large corporates, public bodies and institutional customers. Its segments include Treasury, which includes the entire investment portfolio and trading in foreign exchange contracts and derivative contracts; Corporate/Wholesale Banking, which comprises the lending activities of Corporate Accounts Group, Mid Corporate Accounts Group and Stressed Assets Management Group; Retail Banking, which comprises branches in National Banking Group, which primarily includes Personal Banking activities, including lending activities to corporate customers having banking relations with branches in the National Banking Group, and Other Banking Business, which includes the operations of all the Non-Banking Subsidiaries/Joint Ventures other than SBI Life Insurance Co. Ltd. and SBI General Insurance Co. Ltd. The Company had approximately 22,500 branches and 58,000 ATMs.
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