Shares of SBI Cards and Payments Services Ltd on Monday made a weak debut on the stock exchanges amid sharp sell-off in markets. The shares of the State Bank of India (SBI) subsidiary opened at ₹658, down 12.8% from its issue price of ₹755 a piece. At 10 am, the scrip traded 10% lower from its issue price at 680.45 on the BSE.
The initial public offering (IPO) was open for subscription between 2-5 March with a price band of ₹750-755. The issue was subscribed 26 times. The qualified institutional buyers’(QIB) portion got subscribed 57.2 times, while non-institutional investors’ category got subscribed 45.2 times. Retail and employee categories were subscribed 2.5 times and 4.7 times.
SBI Cards raised ₹10,340 crore through the public issue.
The SBI subsidiary is the second largest credit card issuer with 93.2 lakh outstanding credit cards and ₹98,486 crore in terms of total credit card spends as on December 2019, totalling to a market share of 18.1% and 17.9%, respectively.
Diversified customer acquisition network and large product suite (largest number of co-branding partnership) enable better customer engagement across multiple channels. SBI Cards has maintained a strong earnings trajectory, with revenue growth of 44.6% compound annual growth rate (CAGR) at ₹6,999 crore in 2017 and net profit trajectory at 52.1% CAGR to ₹862.7 crore in 2019.
According to analysts at ICICI Securities, SBI Cards offers investment opportunity in a unique business model with strong profitability.
"Sustainability of higher business growth and strong return ratios justifies premium valuation for the business. At higher end of the price band of ₹755, the stock is available at a price to earnings of 46 times (annualised on post issue basis), said ICICI Securities ahead of the issue.
Analysts feel that given its dominant position in the credit card market, SBI Cards is well placed to benefit from the rising trend of digital payments and e-commerce.
"At the upper price band, the offer is valued at 12.6 times FY20 and 45.8 times FY20E PE. Strong growth, stable asset quality and superior return ratios provides comfort and justifies premium valuation. Further, being the first in the segment to get listed, it could generate high investor interest," said Motilal Oswal Financial Services Ltd.