Is the SBI Cards IPO Safe to Bet? – Everything You Need to Know

Is the SBI Cards IPO Safe to Bet

The time has come for the much-awaited initial public offering (IPO) of SBI Cards and Payment Services which after getting a go-ahead from domestic market regulator Securities & Exchange Board of India (SEBI) is to float its IPO in the capital market on March 02. The SBI Cards IPO will be open for subscription from March 02 to March 05. The IPO Already started making headlines that the SBI Cards Company aims to raise around Rs. 9,600 crores ($ 1.25 billion) through that IPO.  It has been in the news that the SBI Cards IPO issue is to see a strong oversubscription. Many market participants encouraging bet on this IPO as the shares of State Bank of India (SBI) have been trending higher over the last few sessions even after taking a dip following dismal earnings numbers for December quarter last year. Market participants are taking bets on SBI Cards IPO after seen the remarkable growth in the case of IRCTC. However, it would be wise to still proceed with caution and consider the different aspects before investing in the IPO of SBI Cards.

Let’s get a clear understanding before we come to a decision:

About the Company:

SBI Cards & Payment Services Ltd. is a payment solution provider in India which formerly known as SBI Services Private Limited. First launched in May 1998 by the State Bank of India (SBI), the SBI Cards is headquartered in Gurugram, Haryana/Delhi NCR and have spread over 100 cities across India. The SBI Cards was a Private Limited company which converted into a Public Limited Company under a special resolution passed by the shareholders on August 02, 2019.

According to CRISIL Report, the SBI Cards is the second-largest credit card issuer in India offering an extensive credit card portfolio to individuals and corporate customers. As of now, the SBI Cards is now covering all major cardholder segments in terms of lifestyle and profiles that include:

  • Classic Cards – SimplySAVE SBI Card
  • Premium Cards – SBI Card Elite, Doctor’s SBI Card, SBI Card PRIME
  • Corporate Cards – SBI Signature Corporate Card, SBI Platinum Corporate Card
  • Co-branded Cards – Etihad Guest SBI Card, Apollo SBI Card, Ola Money SBI Card, IRCTC SBI Card, BPCL SBI Card, Tata Cards, fbb SBI STYLEUP Card, Yatra SBI Card, Air India SBI Card, Capital First SBI Card, Mumbai Metro SBI Card

As per a report from Reserve Bank of India (RBI), the SBI Cards has seen its share of the credit cards rose from 17.6 per cent in March 2019 to 18.1 per cent as on November 2019, in terms of a number of credit cards in the Indian market. In terms of credit card spends, its share rose from 17.1 per cent in 2018-19 to 17.9 per cent in November 2019.

About the SBI Cards IPO Offer:

The credit card company SBI Cards is to open its initial public offering (IPO) on March 02, 2020. The IPO will be open for subscription from March 02 to March 05. Once allotted, the shares will be credited into the subscribers’ Demant Account on or March 13.

Once done, the shares will be listed on NSE & BSE exchanges on or around March 16, as per Red Herring Prospectus. The Axis Capital, HSBC, SBI Capital Markets, Axis Capital, and BofA Securities are among the book running lead managers of SBI Cards IPO.

According to its Red Herring Prospectus, the company is to issue Rs. 500 crore worth of shares and will offer up to 13.05 crore shares as an offer for sale by promoter SBI and by investor CA Rover Holdings. As per Banking sources, the fourth day the IPO will be kept only for SBI shareholders retail investors and High-Network Investors (HNIs).

SBI Cards IPO Details:

Issue Open Date March 02, 2020
Issue Close Date March 05, 2020
IPO Price Band Rs. 750-755 per Share
Minimum Lot Size 19 Shares
IPO Size Rs. 10,354.77 Cr
Face Value Rs. 10 per Share
Retail Allocation 35%
Employee Discount Rs. 75 per Share
Listing Platform NSE & BSE
Listing Date March 16, 2020

Outstanding Litigation:

No. Entity Name Criminal Proceedings Tax Proceedings Regulatory Proceedings Civil Litigation Amt. (in millions)
1. Company          
  By the company 33,075 3 950.99
  Against company 15 3 17 4,787.39
2. Directors          
  By the Directors
  Against Directors 2 1 25.00
3. Promoter          
  By the promoter 88 2 403,374.90
  Against promoter 1 Over 521 1 19 645,197.90

Financial Statement:

KEY FINANCIALS (in crore)
  30-Dec-19 31-Mar-19 31-Mar-18 31-Mar-17 CAGR (%) FY20E FY21E
Total Revenue 72,401.56 72,868.35 24,245.75 34,710.38 45% 50292.03 72868.35
Total Expenses 56,214.83 59,552.34 44,508.48 28,994.14 43% 41553.21 59552.34
Net Worth 48,288.22 36,532.37 24,245.75 14,488.19 59% 23006.26 36532.37
PAT 11,612.07 8,627.22 6,011.42 3,728.61 52% 5671.64 8627.22

*Note: CAGR is calculated from March 31, 2017, to March 31, 2019, and March 31, 219 is taken as the base year.

Contingent Liabilities:

  As of December 31, 2019 (Rs. In millionns)
Claims against us not recognized as debt  
Demand notices from the service tax department 388.98
Claims against us in the ordinary course of business 181.83
Guarantees 84.63
Demand notice from Income Tax Department 7.27
Contribution notice from ESIC 25.32
Total 688.03

How to know whether the SBI Cards IPO is a good IPO or a bad IPO?

Let us discuss now whether the SBI Cards IPO is a good IPO to apply for listing gains or long-term investment or not. To better understand this, you need to understand why the company goes for IPO which will increase your chances of picking a good deal or dodging the bad one.

Is the Stock Price over-valued or not?

It is debatable that the IPO valuations are often high due to economic conditions, industry outlook, and business position. However, the price valuations pegged to price to book value or P/E ratio. Thus, investors should refer to the Financial Statements, Business Model, Risk Factors, and Management’s Discussion and Analysis of Financial Conditions and Result of Operations that are available in the Red Herring Prospectus, to have an informed view on the IPO before many any investment decision.

Check for Promoters

When investing in an IPO, it is important to check for the credibility of the promoters of IPO Company. In case of SBI Cards, the promoter is State Bank of India (SBI) which currently holds 689,927,363 Equity Shares, consists 74 per cent of the pre-Offer issued, subscribed and paid-up Equity Share Capital of the SBI Cards Company. The SBI is an Indian multinational, public sector banking and financial services statutory body headquartered in Mumbai, Maharashtra. Being the promoter of SBI Cards, the SBI is the largest bank in India with a 23 per cent market shares assets.

The equity shares of the bank are currently listed on major exchanges of India i.e. NSE & BSE. The President of India itself is the promoter of State Bank of India acting through the Ministry of Finance, Government of India, and holds approximately 57.68% of SBI’s fully-diluted paid-up share capital.

Apart from this, the rest of the stake in SBI Cards is held by Carlyle Group.

Check for Bankers Reputation and Past Performances

Whenever a company launches its IPO in the general public, the lead managers of the company are engaged with it. And the part of their work published in the Red Herring Prospectus regulated by the SEBI. The performance of an IPO highly linked to the performance of the company’s lead managers previously engaged IPOs. However, it should not take granted as the IPO performance still based on the company’s fundamentals and future prospect of the company.

Nevertheless, there is no harm in checking the book running lead managers of SBI Cards and their inter se allocation responsibilities.

Check for Strengths & Weaknesses

Everyone is excited with an IPO. Many times we’ve witnessed Oversubscription in IPO Stocks by multiple times, but many people yet fail to understand that the oversubscription does not guarantee the performance of IPO stock in the market.  It has often seen many times that investors ignoring the facts and company’s not so good fundamentals and still apply for IPO anyway. By the time, it about to get listed the market sentiment got reversed and they end up losing big.

Thus, it is important to consider the strengths and weaknesses of the company before making any decision.

SBI Cards IPO Strengths:

  • It is the 2nd largest credit card issuer in India.
  • Has diversified customer acquisition capabilities.
  • Supported by the pre-eminent promoters like SBI.
  • Offers a diversified portfolio of credit card offerings in all major card segments.
  • Comes with advanced risk management and data analytics capabilities.
  • Possesses Modern-Day and scalable technology infrastructure.
  • Have a team of experienced and professional lead managers.

SBI Card IPO Weaknesses:

  • Getting tough competition from other credit card issuers and payment solution providers in the industry.

Final Thoughts:

Overall, we can say that SBI Cards IPO is good enough to subscribe as it is the second-largest credit card issuer in India and backed by the big brand and eminent promoter ‘State Bank of India’. In addition to it, the company’s robust performance in the past three years and 32 per cent rise in CAGR from FY15 to FY19 are expected to grow further 25 per cent. Nevertheless, it would be wise to go through the Red Herring Prospectus of SBI Cards IPO to make informed-decision whether to invest in or not.

Reference:https://www.sebi.gov.in/filings/public-issues/dec-2019/sbi-cards-and-payment-services-limited_45160.html

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