The country's largest public-sector lender State Bank of India (SBI) has filed an initial draft for an IPO for its credit card venture SBI Cards and Payments Services (SBI Cards).

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According to a report by Macquarie, the IPO is expected to be around Rs 9,000-9,600 crore in size. The IPO is likely to hit the markets early next year.

SBI, which holds a 74 percent stake in the unit, along with private equity firm Carlyle Group, which holds the rest 26 percent through its subsidiary CA Rover Holdings, will together sell 13 crore shares or 14 percent of the company through the IPO. While Carlyle is looking to sell a 10 percent stake via the IPO, SBI would sell a 4 percent stake in the company.

READ MORE: SBI Cards may be the largest IPO of FY20: All you need to know

How the IPO will impact the valuation of parent SBI

SBI holds a 74 percent stake in SBI Cards, which Macquarie currently values at Rs 27,500 crore in its model. However, the brokerage, citing media reports, said SBI expects a valuation of Rs 60,000 crore (2.2 times Macquarie's valuation of Rs 27,500 crore) for its share in SBI Cards, which translates to Rs 47 per share of SBI.

The brokerage notes that if value unlocking happens at this price, it would add Rs 16 or 5 percent to their current target price of Rs 320.

Could SBI Cards IPO make it the most expensive financial services company in India?

As per Macquarie, in case SBI Cards gets listed at a market cap of Rs 60,000 crore, it could be the most expensive financial services company in India at 11 times the book value (P/BV).

READ MORE: SBI Cards IPO: 10 vital facts about India’s credit card market that the draft prospectus reveals

"As such there are enormous growth prospects for the credit card industry as it is significantly underpenetrated and economics of the business for successful players have significantly improved post-global financial crisis," the report quoted.

India's credit card industry

According to the global brokerage, India’s credit card industry offers vast room for growth, with less than 5 percent cards per capita, less than 1 percent of banking system loans and less than 7 percent of non-cash spends.

Business models have also become more sound with 50 percent of revenues coming from stable fee income thereby significantly boosting RoE in credit cards business at over 30 percent, said the brokerage.

READ MORE: SBI Cards IPO: Director unable to locate some education records, Sebi action against unit and other key risks listed in draft prospectus

SBI Cards is the second-largest credit card issuer in the country with 9.46 million credit cards and has an 18 percent share of the Indian credit card market as of September 30, 2019. Meanwhile, HDFC Bank has the largest credit card business in the country with 13.3 million cards issued, while ICICI Bank stood third with 7.9 million credit cards, as of September 30, 2019, according to data from the Reserve Bank of India.

The share sale is poised to become the fifth-largest IPO in the country after Coal India, Reliance Power, GIC Re, and Oil and Natural Gas Corp and will help the parent, SBI, raise funds to boost credit growth. For FY19-20, it will be the largest IPO.

First Published:Dec 3, 2019 12:01 PM IST