SBI Cards & Payment Services Limited (SBI Cards), a subsidiary of Sate Bank of
India (SBI), is a non-deposit taking NBFC and one among the two credit card
issuers registered as an NBFC and will become the only listed company in India in
this space. SBI Cards is the 2nd largest credit card issuer in India, with 18.1%
market share in terms of the number of credit cards outstanding as of November
30, 2019. SBI Cards offers various types of credit cards considering the need of
retail clients (viz. Lifestyle Cards, Rewards, Shopping, Travel and Fuel). It also
offers corporate cards and is the largest co-brand credit card issuer in India. It
also issue card in partnership with smaller or regional banks.
Immense growth potential given low penetration and large untapped SBI
customers: SBI Cards has grown its outstanding cards at healthy CAGR of 28%
over FY2015-19 while the industry grew at 23% over the same time. Furthermore,
we expect SBI Cards to continue to register healthy CAGR over FY2020-24 owing
to (a) Significantly underpenetrated Indian credit card market; number of credit
cards per 100 people is 3, whereas in developed/developing countries it is >30.
(b) As on Q3FY2020, credit card to debit card ratio was 3.7% for SBI Cards (vs.
peers viz. HDFC Bank – 45%, Axis Bank – 28% and ICICI Bank – 18%), which
clearly indicates huge scope for mining SBI Bank customers. (c) Total credit card
outstanding loan as % of banking sector loan is just 1.22%, and retail loan is
27%, indicating enough space to increase credit card loan book. (d) Credit card
spend as % of GDP for India is 3%, while that for other countries is >10%. All the
above factors clearly show that there is a huge room for credit card industry to
grow. We believe, with strong parentage and healthy capital adequacy, SBI Cards
should be able to growth at healthy CAGR and gain market share.
Healthy return ratios; stable asset quality despite strong advances growth: SBI
Cards has reported average ROE/ROA of 29%/4.3% over last 3 years. C/I has
declined from 63% in FY2017 to 60.5% in FY2019 and further reduced to 56.6%
for 9MFY2020. Spend base fees contributes 26% of total income and increase in
card spending will improve spend base fees, which will increase operating
leverage, aiding further reduction in C/I. Advances grew at CAGR of 34% over
FY2017-19, however asset quality remained stable in the range of 2.3–2.4%.
Outlook & Valuation: At the upper end of the price band, SBI Cards is valued at
45.5x of 9MFY2020 annualised earnings. Although the valuations are a bit on
the higher side, we are positive on the future outlook of the company given
favorable industry scenario, large untapped SBI Bank customers and strong
financial track record. We recommend a Subscribe to the issue.