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SBI Cards IPO to open on March 2: Should you subscribe to the issue?

SBI Cards IPO, which aims to garner Rs 10,355 crore is likely to see a bumper response from investors. The share sale, fifth-largest ever, will close on March 5

Aseem Thapliyal | March 2, 2020 | Updated 09:12 IST
SBI Cards IPO to open on March 2: Should you subscribe to the issue?
Bidding for SBI Cards IPO can be done in a price band of Rs 750 to Rs 755 per share

SBI will launch the much-awaited IPO of its subsidiary SBI Cards on March 2. SBI Cards IPO, which aims to garner Rs 10,355 crore is likely to see a bumper response from investors. The share sale, fifth-largest ever, will close on March 5. Bidding for SBI Cards IPO can be done in a price band of Rs 750 to  Rs 755 per share. Equity shares will be offered in SBI Cards IPO in a lot of 19 and in multiples of 19 equity shares thereafter.

Eligible employees will be offered SBI Cards shares at a discount of Rs 75 per share.

SBI Cards and Payment Services is owned by State Bank of India and private equity firm Carlyle Group. While SBI owns 74% in its credit card unit, Carlyle Group holds 26% through its subsidiary CA Rover Holdings in the credit cards firm.

SBI Cards IPO: This clause will open more revenue sources for SBI

Both parties will make partial exits from the firm. SBI Cards plans to raise Rs 500 crore by selling 0.66 crore shares. Carlyle Group will offer up to 13.05 crore shares to raise Rs 9,855 crore.

SBI Cards stock is likely to list at 40% premium to the issue price which amounts to nearly Rs 1,000 per share. Post listing, market capitalization of the firm is expected to reach Rs 70,425 crore -70,891 crore.

Individual shareholders of SBI can apply under the retail (investment up to Rs 2 lakh) as well as shareholder category (investment up to Rs 2 lakh). If a SBI shareholder is also an SBI employee, he or she is also eligible to apply in the category of employees (investment up to Rs 5 lakh).

SBI Cards is the second-largest player in the credit card industry second only to HDFC Cards. It had a 18.1% market share (number of credit cards) as of November 30, 2019 and  17.9% market share of the Indian credit card market ( total credit card spends) for eight months ended November 30, 2019.

According to the draft prospectus, the company expects the number of credit cards to increase at an annual rate of 25 per cent per year. SBI Cards has access to SBI's extensive network of 21,961 branches across India. It has a huge customer base of 445.5 million customers.

SBI Cards IPO: Grey market assigns 40% premium, listing seen around Rs 1,000 per share

Headquartered in Delhi, the company had a sales force of 38,677 outsourced sales personnel operating out of 145 Indian cities as of December 31, 2019.

Kotak Mahindra Capital Company, SBI Capital Markets, DSP Merrill Lynch, Axis Capital, HSBC Securities and Capital Markets, and Nomura Financial Advisory and Securities are the book-running lead managers to the issue.

Strong financials

The firm has performed exceptionally well on the financial front with its profit after tax (PAT) rising consistently since 2017. Net profit rose from Rs 373 crore in FY17 to Rs 601 crore in FY18. Profit rose further to Rs 863 crore in FY 19 and the firm logged Rs 1,161 crore profit in the first nine months of FY20.

Total loans and advances which form part of the firm's assets rose from Rs 9,983 crore in FY17 to Rs 23,933 crore in first nine months of FY20.

Interest income rose from Rs 17.5 crore in FY17 to Rs 20.7 crore for the first nine months of Rs 20.7 crore.

Experts' take

Angel Broking has given a subscribe call to the issue. "At the upper end of the price band, SBI Cards is valued at 45.5 times 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 favourable industry scenario, large untapped SBI Bank customers and strong financial track record."

Geojit Research has given a subscribe call for the IPO. "At the upper price band of Rs 755, SBI Cards is available at price to earnings ratio of 46 times FY20E.  Valuation looks justified taking into consideration the historical high growth rate. Given strong parentage and sustainability of growth rate with huge potential for digital payments in India, we recommend subscribe to the issue with a long-term perspective," the brokerage said.

Umesh Mehta, head of research at Samco Securities said, "SBI Cards and Payments Services would be the first in the credit card space to be listed on Indian bourses. It is the most profitable vertical of SBI, its largest and only promoter, which reflects their commitment to maintain and garner growth within the overall industry. Financially as well as operationally, the company has delivered robust performance in the past three-years. Hence, the premium asked for this issue is justified giving due respect to the visible growth opportunity of the industry."  

Rahul Agarwal from Wealth Discovery said, "SBI Cards IPO is worth investing as the company has shown remarkable growth over the years and is also a dominant player in a growing industry. A strong pedigree, extensive branch network, brand association add recall for its parent SBI bank makes the company an attractive bargain. Retail investors would be in a position to make significant profit on listing day. Investors who are enthused by the post-IPO performance of IRCTC, Affle and IndiaMart expect SBI cards to list and perform in a similar manner. "

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