SBI Card IPO sees over 87% subscription on Day 2; retail, employee portion fully booked

The Rs 10,335-crore public offer of SBI Cards and Payment Services, the country's second largest credit card issuer, has seen subscription of 87.55 percent on March 3, the second day of bidding.

The first IPO of 2020 has received bids for over 8.75 crore equity shares against issue size of more than 10 crore shares (excluding anchor book's portion), as per the data showed by exchanges.

The portion set aside for retail investors is subscribed 1.21 times, while that of employees saw 1.84 times subscription, and SBI shareholders portion subscribed 1.4 times.

Employees of SBI Card, the subsidiary of State Bank of India, will receive shares at a discount of Rs 75 per share on final offer price.

The reserved portion of qualified institutional investors has subscribed 21.52 percent, while that of non-institutional investors category saw subscription of 47.06 percent.

The largest IPO since October 2017 consists a fresh issue of Rs 500 crore and offer for sale of more than 13.05 crore shares by parent State Bank of India and investors CA Rover Holdings, an affiliate of private equity Carlyle Group.

"At upper end of price band of Rs 750-755 per share, the IPO is priced at 13.5 times post issue FY20 book value and 45.8 times post issue FY20 EPS (annualized)," said Anand Rathi which advised subscribing the issue.

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Currently, there is no listed player in credit card space. SBI Card is the second-largest credit card issuer in India with 18.1 percent market share of the Indian credit card market in terms of the number of credit cards outstanding as of November 2019, and 17.9 percent market share of the Indian credit card market in terms of total credit card spends in the eight months ended November 2019.

HDFC Bank is the market leader and has maintained its market share in the number of outstanding credit cards at 27 percent over the years.

Hence, Anand Rathi believe SBI Card is well-positioned for continued growth given its strong market position with diverse product offerings, healthy financials, stable asset quality, and sustained support from promoter SBI.

SBI Card is a direct play on increasing digital transactions & rising consumer spending intensity of India. It is the direct & major beneficiary of strongly growing credit card industry.

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"Credit card spending is expected to grow at 20 percent plus CAGR in medium term with SBI Cards to gain market share which shall support its healthy revenue & profit growth. There is also a case of operating leverage with more sourcing from banca channel and potential to push for more EMI linked products. This shall support much stronger profitability," said Aditya Birla Money which recommended investors to subscribe the issue for listing gains and also from long term perspective.

At higher price band of Rs 755, the stock is valued at PE of 45.7x on FY20E EPS and P/ABV of 14x which we believe is reasonable, it said.

The brokerage feels returns ratios are superior with return on assets (RoA) of 5.5 percent plus and return on equity of 30 percent plus. The company has been consistently earning RoE of around 30 percent from several years which is commendable, it said.

Aditya Birla Money believes valuations to stay rich owing to i) strong growth opportunity for credit card industry, ii) SBIC gaining market share, iii) operating leverage, iv) superior NIM, v) superior return ratios, vi) low float as SBI & CA Rover Holdings will cumulatively hold around 85 percent stake, vii) premium of being a only pure credit card player listed in India.

At present, SBI holds 74 percent stake in SBI Card while CA Rover holds 26 percent. Their stakes will be reduced to 69.51 percent and 22.40 percent, respectively, after the issue.