SBI Cards & Payment Services IPO 2020


SBI Cards & Payment Services

Strong play on spends digitisation

 What is the frenzy about? The much talked about IPO of the second largest credit card issuer has been awaited for multiple reasons: (a) a standalone credit card issuer, which (b) turned around strongly after being in red between FY08-FY10 and has ever since delivered robust profit growth (refer Exhibit 1, pp. 2), (c) a lucrative business that churned 38% RoE/6.9% RoA in 9MFY20 (refer financial snapshot table below), (d) SBI pedigree and an ocean of potential customers to farm (~430mn SBI customers) and harvest (~16mn that passed approval filters!), (e) giving investors a large canvas to paint the earnings in sky blue. No wonder SBICARDS MD Mr Hardayal Prasad, in an interview to a media channel, said ‘cash was his biggest competitor’!

 How does SBICARDS compare with competitors? It is already the second largest credit card issuer and actually betters the leader HDFCB on certain metrics (refer Exhibits 2 and 3 for detailed comparative data). With some consistent and aggressive open channel acquisition strategies alongwith strong acquisition through the banca channel, SBICARDS nurses ambitions of becoming the top card issuing company in India. At the current growth rates (+30%YoY) and assuming HDFCB sustains its mid-teen card addition rate, SBICARD could likely overtake HDFCB to become the largest issuer in the next two years (FY22E).

 Robust earnings stack: In FY19, SBICARDS had a spread ratio (NII/avg. assets) of 14% and non-spread income of 20.7%. With outstanding credit cards increasing ~21% YTD and 9MFY20 spends nearing 1x FY19 spends, we estimate the business momentum is likely to result in a net profit of Rs15-16bn in FY20E. We expect profit to compound at 40% over FY20E-FY22E. This should result in RoE in excess of 30%.

 Positive rub-off for SBIN: We currently value SBICARDS at a modest Rs11/share in SBIN SOTP based on 20x FY19 net profit. However, with the changes in corporate tax rate and a strong pick-up in growth momentum for SBICARDS, the IPO value discovery implies a stronger rub-off for SBIN in SOTP. The post-issue valuation of SBICARDS is likely to add at least Rs45 to our current SBIN target price of Rs370 (29% potential upside).
Valuations rich but offer upside, SUBSCRIBE: We believe the fair value of SBICARDS to be between Rs900-950 implying a P/E multiple of ~32x on the FY22E net profit Rs27.5bn (+35% CAGR FY20-FY22E). At a price of Rs900, SBICARDS would trade at Rs845bn market capitalization. That’s nearly 1/3rd the market capitalisation of its parent SBI with a fraction of its assets! Valuations, therefore do appear rich. However, for the +30%RoE/6%ROA combination, we believe the pricing of SBICARDS does offer an upside.

Key earnings risk is regulatory: Changes in merchant discount rate can affect fee income and increase in regulatory capital requirement (current minimum Tier 1 requirement of 10%, minimum CAR requirement of 15%).

Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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Thomas Cook (India) Limited - Equity Shares Buyback Note 2020

Board of Directors of Thomas Cook (India) Ltd. has approved the proposal for buyback by the Company of its own fully paid-up equity shares of Re. 1/- each not exceeding 2,60,86,956 Equity Shares (being 6.90% of the total paid-up equity capital of the Company) from the equity shareholders of the Company at a price of Rs. 57.50.Takeaway As per shareholding data available in FY 2018-19 annual report, acceptance ratio comes around 20% for retail shareholders.**Retail shareholders are classified as the one’s who hold shares of market value upto 2 lakhs on the record date. Other Information about the Buyback • The Entire procedure might take approximate 3 months.• Record date for the buyback is 7th March 2020• The Promoters and Promoter Group of the Company have communicated their intention ‘Not to participate’ in the Buyback. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.)

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Economic Events - Watch Out for Key Economic Events of March 2020

Key Events to Watch Out For In March 2020: Date Country Event Forecast Previous 02-Mar-20   Australia Company Gross Operating Profits (Q.o.Q) (Q4) -3.50% -0.80%     China Caixin Manufacturing PMI (Feb) 45.7 51.1   Germany German Manufacturing PMI (Feb) 45.2 45.3   Euro Zone Manufacturing PMI (Feb) 47.8 47.9     U.K Manufacturing PMI (Feb) 49.8 50     U.S.A Manufacturing PMI (Feb) 50.8 51.9     U.S.A ISM Manufacturing Employment (Feb) 46.6 46.6     U.S.A ISM Manufacturing PMI (Feb) 50.5 47.2 03-Mar-20   Australia Building Approvals (M.o.M) (Jan) 1.00% -0.20%     Australia Current Account (Q4) 2.3 B 7.9 B     Australia RBA Interest Rate Decision (Mar) 0.75% 0.75%     U.K Construction PMI (Feb) 46.6 48.4     South Africa GDP Annualized (Q.o.Q) (Q4) 0.10% -0.60%   Euro Zone Core CPI (Y.o.Y) (Feb)   1.10% 1.10%   Euro Zone CPI (Y.o.Y) (Feb)   1.20% 1.40%   Euro Zone CPI (M.o.M) (Feb)   -1.00% -1.00%   Euro Zone Unemployment Rate (Jan) 7.40% 7.40% 04-Mar-20   Australia GDP (Q.o.Q) (Q4) 0.40% 0.40%     Australia GDP (Y.o.Y) (Q4) 2.00% 1.70%     Japan Services PMI (Feb) 46.7 51   Germany German Retail Sales (M.o.M) (Jan) 1.00% -3.30%   Germany German Services PMI (Feb) 53.3 54.2   Euro Zone Markit Composite PMI (Feb) 51.6 51.3   Euro Zone Services PMI (Feb) 52.8 52.5     U.K Composite PMI (Feb) 52.4 53.3     U.K Services PMI (Feb) 53.3 53.9   Euro Zone Retail Sales (M.o.M) (Jan) 0.70% -1.60%     U.S.A ADP Non-farm Employment Change (Feb) 191 K 291 K     U.S.A Markit Composite PMI (Feb) 49.6 53.3     U.S.A Services PMI (Feb) 49.4 53.4     U.S.A ISM Non-Manufacturing PMI (Feb) 55.5 55.5 05-Mar-20   Australia Trade Balance (Jan) 4.800 B 5.223 B     U.S.A Non-farm Productivity (Q.o.Q) (Q4) 1.40% -0.20%     U.S.A Unit Labor Costs (Q.o.Q) (Q4) 1.40% 2.50%     U.S.A Factory Orders (M.o.M) (Jan) -0.30% 1.80% 06-Mar-20   Japan Household Spending (Y.o.Y) (Jan) -1.70% -4.80%     Japan Household Spending (M.o.M) (Jan) 0.20% -1.70%   Germany German Factory Orders (M.o.M) (Jan) 1.50% -2.10%     Russia CPI (Y.o.Y) (Feb) 2.50% 2.40%     Russia CPI (M.o.M) (Feb) 0.50% 0.40%     U.S.A Average Hourly Earnings (Y.o.Y) (Y.o.Y) (Feb) 3.20% 3.10%     U.S.A Average Hourly Earnings (M.o.M) (Feb) 0.30% 0.20%     U.S.A Non-farm Payrolls (Feb) 178 K 225 K     U.S.A Private Non-farm Payrolls (Feb) 160 K 206 K     U.S.A Trade Balance (Jan) -47.20 B -48.90 B     U.S.A Unemployment Rate (Feb) 3.60% 3.60% 09-Mar-20   Japan Current Account n.s.a. (Jan) 0.417 T 0.524 T 10-Mar-20   China CPI (M.o.M) (Feb) 0.80% 1.40%     China CPI (Y.o.Y) (Feb) 4.90% 5.40%     China PPI (Y.o.Y) (Feb) 0.10% 0.10%   Euro Zone GDP (Q.o.Q) (Q4) 0.20% 0.10%   Euro Zone GDP (Y.o.Y) (Q4) 1.20% 0.90% 11-Mar-20   U.K Manufacturing Production (M.o.M) (Jan) 0.50% 0.30%     U.K Trade Balance (Jan) -10.00 B 0.85 B     U.S.A Core CPI (Y.o.Y) (Feb) 2.20% 2.30%     U.S.A Core CPI (M.o.M) (Feb) 0.20% 0.20%     U.S.A CPI (M.o.M) (Feb) 0.20% 0.10%     U.S.A Federal Budget Balance (Feb) -11.5 B -33.0 B 12-Mar-20   India CPI (Y.o.Y) (Feb) 7.40% 7.59%     U.S.A Core PPI (M.o.M) (Feb) 0.10% 0.50%   Euro Zone Deposit Facility Rate (Mar) -0.50% -0.50% 13-Mar-20 Germany German CPI (M.o.M) (Feb) -0.60% -0.60%     U.S.A Export Price Index (M.o.M) (Feb) -0.10% 0.70% 16-Mar-20   China Fixed Asset Investment (Y.o.Y) (Feb) 5.20% 5.40%     China Industrial Production (Y.o.Y) (Feb) 5.90% 6.90%     India WPI Inflation (Y.o.Y) (Feb) 2.92% 3.10% 17-Mar-20   U.K Average Earnings Index +Bonus (Jan) 3.00% 2.90%     U.K Unemployment Rate (Jan) 3.80% 3.80%     Germany German ZEW Current Conditions (Mar) -10.3 -15.7     U.S.A Core Retail Sales (M.o.M) (Feb) 0.30% 0.30%     U.S.A Retail Sales (M.o.M) (Feb) 0.30% 0.30%     U.S.A JOLTs Job Openings (Jan) 7.000 M 6.423 M 18-Mar-20   Japan Exports (Y.o.Y) (Feb) -6.90% -2.60%     Japan Trade Balance (Feb) -1,694.9 B -1,313.2 B     South Africa Core CPI (M.o.M) (Feb) 0.30% 0.10%     South Africa CPI (M.o.M) (Feb) 0.30% 0.30%     U.S.A Housing Starts (Feb) 1.425 M 1.567 M 19-Mar-20   Japan National Core CPI (Y.o.Y) (Feb) 0.80% 0.80%     Australia Employment Change (Feb) 10.0 K 13.5 K     South Africa Interest Rate Decision (Mar) 6.50% 6.25% Source:

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