Shares of SBI Cards and Payment Services Ltd have gained 50% from the price it listed a year ago, enabling US private equity firm CA Rovers Holdings to earn an exponential return on its investment four years ago. The firm, a subsidiary of private equity fund Carlyle will sell 4% in the company through block deals, according to media reports.

The price band is expected to be Rs981.80-1022.10 per share which would value the firm at roughly Rs96,000 crore. The private equity firm will make a return of whopping nine times over its initial investment. While outsized returns cannot be predicted from here on, the company has managed to tide over the pandemic and this should comfort investors. To its credit, the blow on asset quality has been manageable and SBI Card has kept up its growth rate albeit far lower than what would have been in the absence of a pandemic.

The non-banking finance company has shifted its focus on getting customers to use its cards for essential spends as discretionary were hit hard. E-commerce came to the rescue and its tie-ups with various entities has given SBI Card enough strength to shore up spends. During the nine months ended December, card spends declined 12% for SBI Card, far lower than the 22% drop for the industry as a whole. The impact of covid-19 has been limited and therefore the company managed to increase its market share marginally to 18.8% by December from 18.3% in FY20.

Analysts at Motilal Oswal Financial Services point out that SBI Card has the highest proportion of premium cards in its suite of card offerings, typically used more for discretionary spends. But its incremental spends have come from essentials rather than discretionary. What this shows is that the company has not been able to squeeze more out of its cards. Further, the penetration of credit cards to its existing group customers is low compared with others. The potential for future growth is therefore high.

But SBI Card is an entirely unsecured book unlike other NBFCs that have secured lending. To that extent, delinquencies matter more to assess future profitability. Here, the company has had some hits and misses. Its restructured loan book is 9%, one of the highest among NBFCs. Given that credit cards give the company interest income only when customers default or exceed their interest-free period, delinquencies are bound to be higher than others.

Analysts believe that current valuations reflect most of the asset quality concerns. "We estimate credit cost to moderate gradually, and expect the company to report healthy return ratios with return on assets/ return on equity of 6.6% and 28.4% respectively in FY23," wrote analysts at Motilal in a note.