SBI Card IPO oversubscribed 3.7 times on Day 3, QIB subscription at 11x

SBI Cards and Payment Services, the first initial public offering of 2020 has seen a 3.70 times subscription on March 4, the third day of bidding. SBI Card is the biggest public issue after GIC Re which was launched in October 2017.

The issue has so far received bids for over 37.21 crore equity shares against IPO size of more than 10 crore equity shares (excluding anchor book), the exchanges data showed.

March 4 is the last day for qualified institutional bidders whose reserved portion was subscribed 10.98 times. The issue will remain open till March 5 for all other investors.

The portion set aside for non-institutional investors (or high networth individuals) saw 73.68 percent subscription, while that of retail bidders 1.51 times.

The reserved portion of employees, for whom the country's second largest card issuer will offer shares at a discount of Rs 75 on final IPO price, has subscribed 1.86 times, while that of SBI shareholders saw 1.87 times subscription.

SBI Card launched its Rs 10,355 crore public issue on March 2, which consists a fresh issue of Rs 500 crore and offer for sale of over 13 crore shares by parent State Bank of India and CA Rover Holdings, an affiliate of global investment firm Carlyle Group, with a price band of Rs 750-755 per share.

"We believe SBI Cards IPO offer gives investor a unique opportunity to invest and own the 2nd biggest credit cards issuer in India after HDFC bank. We advise investors to invest for long term like parentage support from highly trusted brand SBI, a proxy to the fastest growing digital payments space and power of diversified reach of SBI," Prashanth Tapse, AVP Research at Mehta Equities told Moneycontrol.

Also read | SBI Cards IPO: 10 things to know about the keenly-eyed issue

"We also assume favourable industry growth dynamics with strong levers like rising discretionary spends and significantly underpenetrated Indian Credit Card Industry in place to drive sustainable, profitable growth gives SBI Cards a competitive advantage for long term play," he said.

Credit card spends registered a growth of CAGR 32 percent (2015 to 2019) to reach Rs 6 lakh crore. And going forward it is expected to reach Rs 15 lakh crore as of fiscal 2024, which is 2.5 times over fiscal 2019.

"We believe SBI Card is well placed to tap the dynamic growth," Tapse said.

On valuations parse at upper price band (Rs 755), the issue is asking for market cap Rs 70,881 crore with PE 45x times, which seems to be fairly and reasonably valued considering the growth rationales, he added.

SBI Card is a 2 decade old business engaged in issuing credit cards to consumers in India. The promoter of the company, State Bank of India (SBI) holds 74 percent stake in the company and Carlyle group 26 percent pre-issue.

SBI Card IPO subscription begins: Should you subscribe?

SBI cards stands the 2nd largest credit card issuer in India, being one of the leading providers of credit cards with 18.1 percent market share of the Indian credit card market in terms of the number of credit cards outstanding and 17.9 percent market share of the Indian credit card market in terms of total credit card spends 2019.

SBI Cards has a diversified customer acquisition network across multiple channels and open market point of sales & access to extensive network of SBI’s vast customer base of 44.55 crore customers.

"With absence of pure play credit player in the listed space, we believe company will enjoy scarcity premium and the recent fancy for companies with differentiated business model has aided in delivering superior returns for shareholders post listing instills confidence on this issue," said Akash Jain, Vice-President Research at Ajcon Global while recommending investors to subscribe the issue.

Jain has a positive bias to the company owing to the following factors: a) big opportunity to be seized as India's credit card spends as a percentage of GDP is 3 percent as compared to South Korea – 37 percent, Hong Kong – 25 percent, US – 17 percent, Brazil – 12 percent, b) 2nd largest credit card issuer in India with a strong track record of growth and profitability, c) legacy of 20+ years, d) leading player in open market customer acquisitions using physical and digital channels in India, e) largest co-brand player, f) supported by a strong brand and pre-eminent promoter with SBI holding of 74 percent (pre IPO), g) pan – India presence, h) technology driven operating model with advanced digital platform, i) advanced risk management and data analytics capabilities, j) modern and scalable technology infrastructure, ) strong record of financial performance, i) robust RoAA of 4 percent + since FY17 and strong ROE of 28 percent+.