|Issue Opens on||March 02, 2020||Issues Closes on||March 05, 2020|
|Total IPO size||Rs10,355cr||Offer for Sale portion||Rs9,855cr|
|IPO Price Band||Rs750-755||Indicative Market Cap||Rs70,890cr|
|Minimum Lot size||19 shares||Max Retail lot||13 lots (247 shares)|
|Pre Issue Holding of SBI||74%||Post issue holding of SBI||69.51%|
|Final basis of allotment||March 11, 2020||Listing date||March 16, 2020|
The story of IPOs in year 2019
To understand why SBI Cards IPO is much awaited, one must quickly look back at the IPO scenario in 2019. During the year, there were a total of 16 IPOs, with only 3 IPOs quoting below the issue price and the remaining IPOs quoting at a premium. The star of the lot has been IRCTC, which has given returns of 512% in 4 months since the listing. In addition, there were five more IPOs that returned more than 100% in less than a year. All this has built up retail and institutional appetite for IPOs and SBI Cards appears to be perfectly poised to ride the wave. That is one of the key reasons why the IPO is much awaited.
SBI Cards has an aggressive Business Model
Being the largest bank in India, SBI has successfully leveraged its bank network to build leadership in other businesses too. SBI has already built a near leadership position in life insurance, asset management and in credit cards. Let us focus on the credit cards business model. With an array of partners including Air India, Apollo Hospitals, BPCL, Etihad, Ola, IRCTC and Yatra; SBI cards manages a portfolio of close to 18 million cards. In the last 3 years, the company’s net profits have grown at a CAGR of 52% while revenues have grown at a CAGR of 44%. The big advantage for SBI Cards is the ready access to the 21,961 branch network of SBI as well as the SBI customer base of 44 crore, accounting for nearly 35% of the Indian population.
Proof of the pudding lies in valuations
The IPO values the stock at around 45 times (P/E) historical earnings. Assuming that SBI Cards has sustained profit growth of 44%, the IPO price should be valued at a P/E of around 20X on FY21 earnings. We will come back to this point later. The company has also improved its net profit margin from 12% in the previous year to 15% in the four rolling quarters ending December 2019. If we look at SBI Cards as a play on digitization and consumerism in India, the growth potential is huge. After the stupendous performance of IRCTC, most investors are finding SBI Cards to be the closest in terms of combining the best of digitization and consumer demand. Like IRCTC, SBI Cards also comes with a massive legacy of a deeply entrenched parent company. If you add these up, the valuations may actually be attractive on a forward basis, which investors find attractive.
Added perks for SBI shareholders and employees
With millions of shareholders and employees of SBI spread across India, the IPO is made available at special terms. Shareholders of SBI can apply up to Rs2 lakhs in the shareholder quota in addition to Rs2 lakhs in the retail quota. This enables retail investors to apply up to Rs4 lakh. If the person is an employee, then that is an additional quota. All these can be managed with the same demat account.
There is also an SBI SOTP angle to it
Lastly, investors are also interested in the sum of total parts (SOTP) angle to SBI valuation. Currently, the SBI market cap is at Rs290,000cr. However, this includes the following:
|Subsidiary||Market Cap||Value of SBI holding|
|SBI Life Insurance (62.2%)||Rs90,000cr||Rs55,980cr|
|SBI AMC (63%)||Rs70,000cr||Rs44,100cr|
|SBI Cards (69.51% post IPO)||Rs70,890cr||Rs49,276cr|
|Value of 3 major holdings||Rs1,49,356cr|
In short, the value of SBI holdings in the 3 principal subsidiaries amounts to 52% of the market cap of SBI. If you add up the smaller subsidiaries, the total value should be closer to 70% of the market cap of SBI. In other words you are getting SBI banking business for around Rs.87,000 crore. A solid premium listing for SBI Cards, could also change the equation in favour of SBI. That could be the real icing on the cake from SBI Cards IPO.