Shares of SBI’s credit-card arm closed at ₹683.20 on BSE, down 9.5% from its issue price of ₹755 a piece
SBI Cards’ IPO was open for subscription between 2-5 March with a price band of ₹750-755
SBI Cards and Payments Services Ltd made a weak stock market debut on Monday as uncertainties over the Covid-19 pandemic caused a sharp sell-off in domestic equity markets.
Shares of the unit of State Bank of India (SBI), the country’s top lender, closed at ₹683.20 on BSE, down 9.5% from its issue price of ₹755 apiece. The stock opened at ₹658, down 12.8% from its issue price. This was the first stock market listing in India this year.
The weak market sentiment has, however, kept unchanged analysts confidence on the stock.
Macquarie Research has initiated coverage on the stock with an outperform rating and a target price of ₹1,025, indicating a 36% potential upside, stating that India’s only notable standalone credit card company and having growth visibility should ensure premium valuations can be sustained. “We believe SBI Cards can deliver a 32% earnings per share (EPS) compounded annual growth rate (CAGR) with an average return on equity (RoE) of 28% over FY20-23, driven primarily by over 25% growth in cards outstanding," the foreign brokerage firm said in a note on Monday.
SBI Cards’ 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 was subscribed 45.2 times.
Retail and employee categories were subscribed 2.5 times and 4.7 times respectively. SBI Cards raised ₹10,340 crore through the public issue.
The company is the second-largest credit card issuer in India with 9.32 million outstanding credit cards and ₹98,486 crore in total credit card spends as on December 2019, achieving a market share of 18.1% and 17.9%, respectively.
Diversified customer acquisition network and large product suite comprising the largest number of co-branding partnerships 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 (annualized on post issue basis), said ICICI Securities ahead of the issue.
Analysts said 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.
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