SBI Card and Payment Services, another PSU stock is about to enter the market after getting a go-ahead from Securities Exchange Board of India (SEBI) to float an initial public offering (IPO). If reports are to be believed the IPO size could be somewhere upwards of Rs 6,000 crore. The second-largest credit card issuer in India, SBI Cards is an arm of public sector lender State Bank of India and has a market share of 18 per cent. With good margins and low capital requirements, analysts say, SBI Cards could be a lucrative bet.
"It's an excellent opportunity for long term investment as insurance credit cards and AMC are businesses for the future. In the US, Visa and Mastercard have seen superior returns in the last year. Globally market cap of credit card issuers is close to new highs. In the Indian context, SBI is the oldest and most superior PSU bank as safe as RBI", Sanjiv Bhasin, Director, IIFL Securities, told Financial Express Online last month. SBI Cards will offer up to 130.5 million shares through the IPO, which includes share sale by SBI and CA rover Holdings – a group company of Carlyle Group.
SBI Cards is a low-risk business with good margins, investment advisor Sandip Sabharwal recently told Financial Express Online. He added, "SBI Cards IPO should do well given the fact that it will be a unique offering in the financial services space and low-risk business with good margins and low capital requirements. Valuation of such a business has to be on the Price to Earnings ratio. It should be a good option for investors."
Earlier in December, SBI Chairman Rajnish Kumar had said the SBI Cards IPO would be launched in the coming months. Kotak Mahindra Capital, Axis Capital, DSP Merryl Lynch, Nomura Financial Advisory, HSBC Securities and SBI Capital Markets are the book-running lead managers of the issue.
"SBI Cards seems to be one of the good IPO for retail investors. In the recent past, we have observed the PSU IPO as IRCTC did wonderfully well for the investors as well as for players who look for listing gains," Vishal Wagh, Research Head, Bonanza Portfolio told Financial Express Online. While refraining from putting a call on the IPO, Wagh said, "One needs to wait for finalization pricing for giving any buy or sell comment. But we are expecting a good premium for the investor over here."
"Any business, be it SBI Cards or any other, gets valued by demand and supply law and market forces only after it is listed. However, before that, the only way to value it would be to look at the internals of the unlisted entity and compare it with its peers", technical analyst Milan Vaishnav, CMT, MSTA, told Financial Express Online. Vaishnav added that if we rely on fundamental valuations SBI Cards translates to 150-175 Rs higher than the price at which it is being offered in the IPO.
Talking to Financial Express Online, Ajit Mishra, VP Research, Religare Broking said that the under-penetrated card industry is likely to witness growth in the country with increasing adoption of credit in the country. "The company (SBI Cards) has a strong track record of growth and profitability and has economies of scale leading to significant operating efficiencies. Further, with its promoter-SBI's strong and wide presence across the country, we believe the company would continue to grow at a robust pace and outperform the industry. However, as per media reports, the company is expected to be priced at an expensive valuation against its global peers. Therefore, while we believe SBI cards would be a good long term bet for investors, acquiring the same at reasonable valuations would be the key," he added.
IRCTC, the PSU that was listed in 2019 has jumped almost 100 per cent from the listing price. SBI Card's parent Company SBI too has been a good performer in the last one year compared to other PSU Banks, with returns of 20 per cent in the last one year. SBI reported its highest quarterly results in the quarter ended December 31, jumping 41 per cent to clock at Rs 5,583 crore.