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SBI Cards IPO opens today: All you need to know about IPO structure, financials, key risks

Shares will be offered 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

twitter-logoBusinessToday.In | March 2, 2020 | Updated 13:27 IST
SBI Cards IPO opens today: All you need to know about IPO structure, financials, key risks
With the IPO, SBI Cards will become the fifth company under the SBI Group to be listed on bourses.

The much-awaited IPO (Initial Public Offering) of State Bank of India's card subsidiary SBI Cards and Payments Services Ltd will open for subscription today. Market analysts are hoping the issue will get a bumper response and SBI Cards also aims to mop-up over Rs 10,000 crore. With the IPO, SBI Cards will become the fifth company under the SBI Group to be listed on bourses. The IPO, fixed at Rs 750-755, will close for subscription on March 5.

Here's all you need to know about the SBI cards IPO.

About IPO

The issue size works out to be Rs 10,355 crore ($1.4 billion), making it the fifth-biggest domestic IPO. While the company will not receive any proceeds from the Offer for Sale (OFS), net proceeds generated from the fresh issue are proposed to be utilised for augmenting the capital base to meet its future capital requirements.  

IPO Structure

Shares will be offered 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. 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.

Also read: SBI Cards IPO: 10 things to know about share sale on March 2

Promoters to make a partial exit

As part of the IPO process, its promoters, namely Carlyle Group and State Bank of India (SBI), will make a partial exit from SBI Cards and Payment Services Ltd.  SBI and Carlyle are reportedly paring their stakes through Offer for Sale (OFS) process by 4 per cent and 10 per cent, respectively. Washington-based Carlyle Group being a private equity (PE) firm (that invests in the initial phases of business and then exits later) will be offloading 10 per cent stake, amounting to Rs 6,500 crore. The stake sale could be India's largest-ever PE exit through a public listing in India.

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 the 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 FY20.

Key risks

Risks can't be overlooked in a high priced valuation like SBI Cards. Coupled with this, it is a single product company dealing in unsecured credit and there are no other products to de-risk the book in bad times. In a slowing economy, rise in defaults could impact quality of its portfolio. India Equity Research in its IPO note pointed out MDR/Interchange fees, higher capital requirement and rising asset-quality risk given weakening macros/employment rates as key risks to investors. Another key risk for the broader industry is that credit card penetration remains low in the country (4 out of 100 people as compared to over 30 per 100 people for China and other developing and developed countries).

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

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," the brokerage said.

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 historically high growth rate. Given strong parentage and sustainability of growth rate with huge potential for digital payments in India, we recommend subscribing to the issue with a long-term perspective," the brokerage said.

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