SBI Cards IPO Opens On 2 March: Should You Invest?

The Rs 9,000 crore IPO (initial public offering) of SBI Cards & Payment Services (SBI Cards) is scheduled to open on 2 March. SBI Cards, a subsidiary of the State Bank of India, is the second-largest credit card issuer in the country (after HDFC Bank) with a market share of 18 percent.

Following the successful listing of IRCTC in October 2019 (that has risen 500 percent in value since), there are high expectations that the SBI Cards IPO may be another good investment opportunity for this financial year.

SBI Cards IPO details

• Dates: 2 to 5 March 2020
• Issue size: The total issue size of 13.71 crore equity shares will include fresh issue of 66.22 lakh shares and 13.05 crore shares in offer-for-sale (OFS).
• Face value: Rs 10
• IPO price band: Rs 750-755 per share
• Lot size: 19 shares
• Minimum order: 1 lot (19 shares). At the upper price band of Rs 755 per share, minimum investment towards the IPO would be Rs 14,345.
• Finalisation of Basis of allotment: 11 March 2020
• Date of crediting Demat account with shares: 13 March 2020
• Proposed listing date: 16 March 2020
• To be listed on: BSE and NSE
• Registrar: Link Intime India
• Book-running lead managers: Kotak Mahindra Capital, Axis Capital, DSP Merryl Lynch, Nomura Financial Advisory, HSBC Securities and SBI Capital Markets

Reservations:

• 35 percent of the issue is reserved for retail investors. Within the category, there are reservations for existing shareholders of SBI and full-time employees.
• Those who have shares of SBI in their existing portfolio as on 18 February 2020 are eligible to apply for the IPO under the category reserved for shareholders. A maximum investment of Rs 2 lakh can be made by them.
• Those who do not hold SBI shares or bought them after the cut-off date can apply under the retail category up to the extent of Rs 2 lakh.
• Eligible employees of SBI will receive a discount of Rs 75 per share. They can apply in all the three categories-retail investor, shareholders and employee category, subject to a maximum investment limit of Rs 5 lakh. In case the issue has been oversubscribed, the maximum allotment made will not be over Rs 2 lakh to an employee.
• 50 percent of the issue has been reserved for QIBs (Qualified Institutional Buyers).
• 15 percent of the issue is reserved for Non- Institutional Bidders (NIBs).

The IPO will be open on all four days of the issue for retail investors. The last day, that is 5 March, is exclusively for retail investors (closed for institutional investors).

Company details

SBI holds 76 percent stake in SBI Cards, while the rest is held by Carlyle Group. The OFS will include up to 3.72 crore share- sale by SBI and up to 9.32 lakh shares on offer by Carlyle Group, as per the IPO's prospectus.

In the last two financial years (FY18 and FY19), SBI Cards' total income has grown by a compounded growth rate of 45 percent to Rs 7,286 crore while its net profits have increased at a compounded rate of 52 percent to Rs 862 crore.

Its market share in the credit card business in India stands at 18 percent, second only to HDFC Bank's 27 percent.

Should you invest in SBI Cards IPO?

SBI Cards' primary appeal is that it has a strong parent-the State Bank of India- which being the largest bank in the country in terms of reach and assets, gives it the potential to grow further in the domestic credit card market.

There is scope for high growth for the company in the credit card business as credit card use in India is still low. It can increase penetration in the market with SBI's existing banking network and brand name.

Analysts expect a good response from all categories for the issue, as last seen with IRCTC IPO. Investors can also look at this opportunity for listing gains.

Note that there is no listed peer that SBI cards can be compared to as it will be the first card company to be listed on the Indian stock market.

Also, investors should also note that SBI Cards is a single product company which deals with unsecured credit. There isn't another product that it can the balance risk of non-repayments with.

There is also a threat from prepaid instrument businesses like UPI payments and e-wallet apps. Further, economic slowdown (which also reducing consumption and spending) could hurt its profit greatly.

Speaking about the IPO investment, AK Prabhakar, head of research at IDBI Capital was quoted in Business Standard saying, "This is a new kind of business which is not listed in India. It is more of a financial entity and given the kind of craze around it, it will get a good response. However, the valuation is a bit discomforting. Since it's a good brand, pricing doesn't matter, it will get oversubscribed. But people need to be careful because normally, after listing with steep gains, the stock doesn't give normal returns."

About the management of the company, HDFC Securities said in an IPO note, "SBI Cards has a professional and experienced management team with a deep level of expertise in the credit card industry and overall financial services industry. It's managing director and chief executive officer, Mr Hardayal Prasad, has over 36 years of experience in the financial services industry. This deep industry expertise provides its leadership team with the vision to steer the long-term strategic direction of its business."

Disclaimer

The article is not a solicitation to buy, sell in securities mentioned in the article. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article.

About the author

Olga Robert has been covering equity markets and personal finance for over two years.