SBI Card IPO subscribed 38.87 pct on day one; Experts bet high

SBI Card IPO: The State Bank of India (SBI) subsidiary SBI Cards and Payment Services (SBI Card) initial public offer (IPO) was subscribed 38.87 per cent on the first day of the bidding process on Monday. The IPO of SBI Cards will close on March 5. SBI is aiming to raise Rs 10,350 crore through the SBI Card IPO. The price range for the IPO has been fixed at Rs 750-755 per share. The minimum amount one can invest by subscribing to a lot of 19 shares is Rs 14,345.

SBI Card — a JV between India’s largest public sector bank and CA Rover Holdings (Carlyle Group) — is launching SBI Card IPO with a small fresh issuance of Rs 500 crore (66 lakh shares) and an Offer for Sale (OFS) of 13.05 crore shares by partners (SBI: 3.72 crore shares; Carlyle: 9.32 crore shares), implying an issue size of Rs 10,350 crore at a higher price band of Rs 755. Given the higher share of OFS, the IPO is primarily to unlock value for existing investors (SBI and Carlyle) and also to provide a unique opportunity for investors to invest in a direct play on India’s rising consumerism and digital payment story. For SBI bank, the IPO would imply a value of Rs 41, 700 crore or Rs 59 per share (post Holdco discount), adding another around Rs 11 to our target price for SBI (Rs 380).

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Experts believe that SBI Cards, being the second-largest pure-play credit card player with a strong parental lineage (SBI), is well-positioned to maintain strong growth trajectory and sustainably superior return ratios, thereby commanding premium valuations. SBI Cards IPO at a higher band of Rs 755/market cap of around Rs 70,900 crore implies a premium valuation (PE of 45x based on 9MFY20 annualized EPS) against developed or developing economy peers that are trading around 9-18x and even some retail-oriented high-growth Indian Banks/NBFCs such as HDFCB, AU SFB, Bandhan and BAF that are trading around 20-47x PE. 

Key risk involved in SBI card IPO

Accroding to the share market experts regulatory risk on MDR/Interchange fees, rising competition from alternative digital payment platforms, higher capital requirement and rising asset-quality risk given weakening macros/employment rates.

For SBI Card IPO investors, there are six categories of investors namely — retail, SBI shareholders, SBI employees, anchor, qualified institutional buyers (QIB) and non-institutional investors. The State Bank of India has decided to give Rs 75 per share discount to its employees. Hence, for SBI employees, SBI Card IPO price band is Rs 675-680. Those, who hold even one share of SBI, can apply under the SBI shareholders category.