Planning to subscribe SBI Cards IPO? Here's all you need to know

Finally, the wait is over, the SBI Cards and Payment services (SBI Cards) IPO opens today.

Unlike others of its kind, the subscription window for the IPO will remain open for 4 days, which will be from March 2 to March 5. The extra day has been given for smooth conduct of applications, considering the large portion reserved for retail investors.

For subscription, separate share quotas have been set aside for six different categories of investors including anchor, qualified institutional buyers, non-institutional investors, retail, SBI shareholders and employees. 
But before we dig into the process and whether you should subscribe, here’s a quick brief on the SBI Cards IPO.
 

SBI along with a private equity (PE) major Carlyle group offers about Rs 13 crore worth shares and a fresh issue of Rs 500 crore, through this IPO, planning to raise up to Rs 10,341 crore which will be used to strengthen the SBI’s capital base.

In case you don’t know, SBI is the country’s second largest credit card company having 18 per cent market share in terms of cards outstanding, with 9.83 million credit cards outstanding as of November, 30, 2019 and Rs 1.03 trillion in total of credit card spends in fiscal 2019.

The price band of each share is set between Rs 750 and Rs 755.
 

The company has allotted nearly Rs 2,800 crore worth of shares to anchor investors ahead of its opening. A total of 36.7 million shares have been allotted to 75 anchor investors at Rs 755 apiece, the top-end of the IPO price band. The list includes sovereign funds belonging to the Singapore and Kuwait government, Fidelity, Nomura, BNP Paribas, GMO and Blackrock.

So, should you subscribe to the offer? Well here’s what analysts recommend:
 

Valued at nearly 43x P/E (trailing) and 41x (based on H1FY20 annualised EPS), analysts see the valuation of the credit card issuer as aggressive when compared with peers. They, however, believe that the stock commands the premium valuation given its strong financial track record, goodwill associated with its parent company, State Bank of India (SBI), and a strong distribution network. Nearly all of them have assigned it a ‘subscribe’ rating.

Considering SBI’s dominant position in the credit card market and rising trend of digital payments and e-commerce, Brokerage firm Motilal Oswal recommend 'Subscribe' to the IPO. Also, the offer is valued at 12.6 times its FY20 estimated book value (on an annualised and fully diluted basis) and 45.8 times its FY20 estimated price-to-earnings.

ICICI Securities says SBI Cards offers investment opportunity in a unique business model with strong profitability. Sustainability of higher business growth and strong return ratios justifies premium valuation for the business. Therefore, it recommends a SUBSCRIBE recommendation on the stock.

Nirmal Bang explains low penetration in SBI customer base plus strong distribution means SBI Cards’ user base can continue to grow at historical growth rates of 27 per cent CAGR (over FY15-19). Besides, increased focus on EMI products can lead to loan book growing at an even faster pace. While asset quality has held up till now, a slowing economy and job losses can lead to an increase in non-performing assets (NPAs). And therefore it recommends applying for the issue and rates the IPO as ‘SUBSCRIBE’.

And Geojit Financial Services recommends ‘SUBSCRIBE’ to the issue with a long-term perspective, considering the healthy business outlook of SBI with 35 per cent and 54 per cent CAGR in credit card spending and outstanding during FY17-FY19. SBI Cards total revenue increased 46 per cent CAGR and net profit grew 52 per cent CAGR during...

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