SBI Cards IPO: Is it a money-making opportunity for investors? Experts recommend 'buy' for this Initial Public Offer
SBI Cards is coming soon and investors are wanting to know whether it is a money-making opportunity. Here are top insights into the offer.
SBI or State Bank of India is coming out with as many as two IPOs — SBI Card and UTI AMC. SBI Card has already submitted its applications with SEBI (Securities and Exchange Board of India). SBI Card IPO will be Rs 9,500 crore worth. Sensing strong fundamentals and massive network of the State Bank of India (SBI) and its cards and payment services spread, the SBI Cards IPO is expected to perform well on the NSE and BSE, says this expert. SBI Cards has moved to the second position in India with a market share of 18 per cent and it has the potential to scale up further, riding Indian consumers’ increasing predilection for credit cards and higher penetration in its captive Banca customers.
Speaking on the SBI Cards IPO, Anand Dama, Research Analyst at Emkay Global said, "SBI Cards is likely to be valued at around Rs 600bn in the IPO, implying premium valuations post-money (PE of 41x based on H1FY20 annualized EPS) against its developed or developing economy peers that are trading around 9-18x PE. For SBI bank, the IPO at this valuation would imply a value of Rs 417bn/Rs37 per share (post discount), which is higher than our and Street’s estimate, adding around Rs 15 to our target price for SBI (Rs 350)."
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Dama said that SBI cards also commands a relatively strong RoA of around 5.5 per cent (normalized in H1FY20), driven by better margins or fees on better revolve rates and contained credit costs, while the benefit of lower tax rate can help RoAs in the near term. However, it needs to focus on improving operating leverage, spends per card via focusing on open market sourced carded/premium customers to drive fees and convert spends into EMIs/Term Loans to bring stability to its otherwise superior margins/RoAs. Amid rising asset-quality risk due to weakening economic trends and rising unemployment rates, SBIC with its otherwise higher delinquency rates (GNPA ratio of 2.3 per cent) and lower customer vintage would need to be watched carefully.
On the suggestion to the IPO investors in regard to the SBI Cards IPO Chandan Taparia, Derivative & Technical Analyst at Motilal Oswal said, "SBI Cards IPO has a backing of strong parent company like State Bank of India (SBI). An investor can go for the subscription of the SBI Cards IPO when it becomes available for subscription."