SBI Cards IPO – Issue details, Risks and FAQs of the IPO
SBI Cards IPO Review
Investors have been waiting for an SBI Cards IPO date for a long time. This IPO would open for subscription on 2nd March, 2020. SBI Cards and Payment Services is the subsidiary of SBI and 2nd largest credit card issuer in India that has a share of 18.1% as of December, 2019. IRCTC IPO has created good wealth in the short term and investors have been waiting for similar IPOs. SBI Cards Mega IPO is expected to be around Rs 9,000 Crores issue size. Should you invest in the SBI Cards IPO? What are the risk factors you should consider before investing in this SBI Cards IPO?
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About SBI Cards and Payment Services Limited
They are one of India’s leading providers of credit cards in India. Its operating model is focused on catering to what they see as its card holders’ two main financial needs: transactional needs and short term credit. The revenue they derive from its credit card products consists primarily of interest on its credit card receivables and non-interest income primarily comprised of fee-based income, such as interchange fees, late fees, annual credit card membership fees and other fees.
A typical credit card transaction begins when a card holder purchases goods or services from a merchant using its credit card. After the transaction is authorized by the credit card issuer through the payment network, the credit card issuer pays the purchase amount to the payment network net of interchange fees. The payment network, in turn, then pays the purchase amount to the acquirer. Finally, the acquirer pays the purchase amount to the merchant net of acquirer fees.
SBI Cards IPO – Issue details
IPO opening date: 2-March-2020
IPO closure date: 5-March-2020
Face Value: Rs 10 per share
Issue price band: Rs 750 to Rs 755 per share
Issue size: 9,000 Crores approx.
IPO Lot size: 19 shares
Minimum investment: Rs 14,250
Leading Managers: Kotak Mahindra Capital Services, SBI Capital, Axis Capital, HSBC Securities, Nomura India Services, DSP Merrillynch Securities
Listing: BSE / NSE
What are the Objects of the SBI Cards IPO?
Here are the objects of the IPO issue.
1) Offer for Sale (OFS): The object of the Offer for Sale is to allow the selling shareholders to sell equity shares held by them. The company will not receive any proceeds from the Offer for Sale.
2) Fresh Issue: The net proceeds of the Fresh Issue, i.e. Gross proceeds of the Fresh Issue less the Offer Expenses apportioned to Company are proposed to be utilized for an augmenting capital base to meet its future capital requirements.
Who are the Company Promoters?
SBI is the promoter of the company.
How is the company doing in terms of Financial Performance (Reinstated)?
1) Company revenues increased from Rs 3,471 Crores for FY2017 to Rs 7,286 Crores in FY2019. Its revenues for 9 months ended Dec-2019 is Rs 5,278 Crores.
2) Company profits increased from Rs 372.8 Crores for the year ended Mar-17 to Rs 562.7 Crores for the year ended Mar-19. It posted Rs 614.5 Crores profit for 9 months ended Dec-2019.
3) Its average EPS in the last 3 years is 7.97 and FY2019 is 9.43. For 9 months ended Dec-2019, its EPS is at 12.45.
What are the key strengths of SBI Cards and Payment Services Limited?
Every investor should understand the company’s key strengths so that they can compare with its competitors to know how unique such company in their business is. Their investment decision would change based on these facts. Here are the key strengths of the SBI Cards and Payment Services.
1) Diversified customer acquisition capabilities.
2) Supported by a strong brand and the pre-eminent Promoter.
3) Diversified portfolio of credit card offerings.
4) Advanced risk management and data analytics capabilities.
5) Modern and scalable technology infrastructure.
6) Highly experienced and professional management team.
7) Second largest credit card issuer in India with deep industry expertise and a demonstrated track record of growth and profitability.
What are the various strategies of SBI Cards and Payment Services Ltd?
Company strategies would help investors to know what company is intending to do in the future and whether these strategies would help in revenue or margin growth. Such information would help investors to decide whether to invest for short term, medium term or for the long term. Here are the company strategies.
1) Expand its customer acquisition capabilities to grow cardholder base.
2) Tap into new cardholder segments by broadening portfolio of credit card products.
3) Stimulate growth in credit card transaction volumes.
4) Continue to optimize its risk management processes.
5) Enhance cardholder experience.
6) Continue leveraging technology across its operations.
Positive Factors to invest SBI Cards IPO
These positive factors can impact company growth, its revenue and margins which can increase its share price. Investors should go through these points and understand these positive factors while investing.
1) SBI Cards is 2nd largest credit card issuer in India (HDFC Bank is the largest 1st largest in India) that has 18.1% share as of 31st December, 2019.
2) Consistent growth in revenue in the last few years.
3) Consistent margins in the last 3 years and 9 months.
Major risk Factors to consider before investing in SBI Cards IPO
These risk factors can impact company revenue and margins which would affect its share price. Investors should go through these points and understand these risk factors before investing.
1) They use the “SBI” brand of its Promoter, and are exposed to the risk that the “SBI” brand may be affected by events beyond its control and that Promoter may prevent them from using it in the future.
2) They derive substantial benefits from its existing relationship with its Promoter, and a loss or reduction in the level of support they receive from its Promoter could adversely affect them.
3) Substantially all of its credit card portfolio is unsupported by any collateral that could help ensure repayment, and in the event of non-payment by a card holder of their credit card receivables, they may be unable to collect the unpaid balance.
4) They face competition in the credit card market from other credit card issuers and payment solutions providers, and they may not be able to compete effectively, which could result in fewer card holders and lower account balances and could materially adversely affect its financial condition, cash flows and results of operations.
5) Fraudulent activity associated with its products or its networks could cause its brand to suffer reputational damage, the use of its products to decrease and its fraud losses to be materially adversely affected.
6) They rely on third-parties for customer acquisitions, technology, platforms and other services integral to the operations of its businesses.
7) One of its group companies is involved in SEBI proceedings in relation to certain non-compliances under securities related laws.
8) Cyber-attacks or other security breaches could have a material adverse effect on its business, results of operation or financial condition.
9) Its provisions for credit losses may prove to be insufficient to cover losses on its credit card receivables.
10) For complete internal and external risk factors, you can refer the RHP of the company.
SBI Cards and Payment Services IPO Schedule
Offer Opens – 2-Mar-2020
Offer Closes – 5-Mar-2020
Finalization of Basis of Allotment – 11-Mar-2020
Unblocking of ABSA and Initiation of Refunds – 12-Mar-2020
Credit of shares to Demat Accounts – 13-Mar-2020
IPO Shares Listing Date – 16-Mar-2020
Is the issue price of SBI Cards IPO reasonably priced or over priced?
On the upper price band of Rs 755 and the last 3 years average EPS of Rs 7.97, the P/E works out to be 95x. Similarly, on the upper price band of Rs 755 and the last year FY19 average EPS of Rs 9.43, the P/E works out to be 80x. Even if we take 9 months ended Dec-2019 EPS of 12.45, P/E works out to be 60x. Hence the company is asking the higher price band of Rs 755 in the P/E or 60x to 80x. There are no listed peers in same business to compare, hence we cannot ascertain whether the issue price is under priced or overpriced.
Should you invest in SBI Cards IPO for medium to long term?
SBI Cards is the subsidiary of SBI and the 2nd largest card issuer in India. Its revenues and margins are consistent and improving. Its issue price cannot be determined whether it is under priced or overpriced. Considering various positive factors, this is a STRONG BUY for medium to long term. One should note that stock markets are taking huge correction. In this scenario, one should wait and watch before applying this on day-1. While it is good buy, based on the investors response, one can apply for this IPO from day-2 onwards.
FAQs about SBI Card IPO
1) What products and services does SBI Cards offer?
They offer comprehensive credit cards that include personal credit cards, corporate cards, white lable cards and value added services like Easy money, ATM cash, flexipay and balance transfer.
2) Is there any SBI Shareholders reservation in this SBI Cards IPO?
Investors who hold SBI shares as on 18th February, 2020 are eligible to apply under shareholders category upto Rs 2 Lakhs.
3) Is there any SBI employee reservation in this SBI Cards IPO?
Employees of SBI cards are eligible to apply under employee category up to Rs 5 Lakhs in this SBI Cards IPO.
4) Can I apply in retail, employee and shareholder quota in SBI Cards IPO?
Investors can apply them in these 3 individual categories a) Apply in the retail category upto Rs 2 Lakhs b) Apply this IPO in the employee category upto Rs 5 Lakhs c) Apply in this SBI cards IPO in shareholders category upto Rs 2 Lakhs.
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5) What is the face value of SBI Cards IPO Share price?
SBI Cards IPO share price face value is Rs 10 per share.
6) When will SBI cards IPO open?
SBI cards IPO would open for subscription on 2nd March and closes on 5th March, 2020. Once it is listed on BSE/NSE, investors can continue buying. However the price of the shares might change
7) What is SBI Cards IPO GMP?
Its un-official GMP, the SBI Cards GMP is trading around Rs 1,100 which is over Rs 350 premium to the expected issue price.
8) What is the Offer break-up?
Here is the offer break-up:
Retail Portion – 35%
QIB – 50%
NIB – 15%
9) Who are the book running lead managers of SBI Cards IPO?
Kotak Mahindra Capital, Axis Capital, BofA Securities, HSBC Securities, Nomura India, SBI Capital Markets are the book running lead managers to the IPO issue.
10) When is SBI Cards IPO listing date?
SBI Cards expected to get listed on 16th March, 2020.
11) How to apply for SBI Card IPO?
You need to have demat account to apply for this IPO. You can login to your demat account, visit IPO/FPO/NFO section and apply for this IPO. If you do not have demat account, you can open free demat account to start with.
Readers, what do you feel about investing in this this IPO?
Disclaimer: This article is for information purpose only. Please consult your investment advisor before you invest in such high risk IPOs.
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SBI Cards and Payment Services IPO Review