SBI Card IPO subscribed 46% on Day 2 so far

NEW DELHI: The IPO by SBI Cards and Payment Services (SBI) was subscribed 46 per cent on Day 2 of the bidding process so far.

The issue received bids for 4,59,62,596 shares compared with the issue size of 10,02,79,411 shares. The quota reserved for retail individual investors has been subscribed 75 per cent while that for non-institutional investors by 15 per cent.

The company has already raised Rs 2,769 crore from 74 anchor investors, including 12 mutual funds.

The price band for the issue is fixed at Rs 750-755 and the minimum amount a small investor can invest by subscribing a lot of 19 shares is Rs 14,345.

The IPO demands a PE of 45.5 times and P/B of 14.5 times, which analysts said are on the higher side. But the company has no listed peers in India.

“A look at more mature markets such as the US reveals that American Express, which derives over half of the revenue from consumer services including credit cards, trades at a trailing P/E of around 17 with ROE of nearly 30 per cent,” said Progressive Share Brokers.

Prabhudas Lilladher, which has a subscribe rating on the SBI Card IPO, values SBI Card at PEG of 1.2, which stands lower than 1.3 PEG for American Express that has 58 million cards-in-force and a enjoys market cap of $98 billion. The brokerage values the fair value of SBI Card stock at Rs 1,191.

Sustainability of higher business growth and strong return ratios justify the premium valuation for the business, said ICICI Direct.

“A 25 per cent growth rate appears self-sustainable on current RoE and dividend payout. Asset quality cycle has been benign for nearly a decade now, thus any disruption in credit cost cycle could significantly impact valuation and sustainable growth rate,” YES Securities said while recommending subscribe on the issue.

Geojit Financial Services, Angel Broking, Nirmal Bang Securities and Hem Securities, among others, have ‘subscribe’ ratings on the issue.

The biggest strength of the company is the SBI’s parentage, whose brand is highly trusted. The credit card-to-debit card ratio for SBI Card stands at 3.7 per cent for SBI Card compared with 45 per cent of HDFC Bank, 28 per cent for Axis Bank and 18 per cent for ICICI Bank, which suggests scope for SBI Card mining SBI Bank customers.

This along with a strong distribution network makes brokerages believe the asking valuations (at huge premium) are justified.

The second-largest credit card issuer has grown its outstanding cards at a compounded annual growth rate (CAGR) of 28 per cent over FY2015-19 against an industry average of 23 per cent over the same period.

Advances have grown at 34 per cent for SBI Card over FY2017-19, even as NPAs at 2.3–2.4 per cent were higher than industry average.

Analysts noted that SBI Card has not seen its RoE dip below 25 per cent in the past 6-7 years and has averaged 30 per cent ROE during that time.