SBI Cards lists 12% below issue price of Rs 755; recovers later

Shares of SBI Cards & Payment Services (SBI Cards) listed at Rs 661, 12.45 per cent below its issue price of Rs 755 on the National Stock Exchange (NSE) on Monday. On the BSE, it opened at Rs 658, 13 per cent lower against issue price.

The stock eventually ended at Rs 683 apiece on the BSE. 

The stock saw a weak debut due to prevailing market condition as the uncertainty regarding the effect of the coronavirus epidemic continued to keep investor sentiment in check. The benchmark indices Nifty50 and S&P BSE Sensex have declined 16.6 per cent since the SBI Card initial public offer (IPO) opened for subscription on March 2, 2020. The indices have tanked nearly 21 per cent, since the credit card arm of the State Bank of India (SBI) filed Draft Red Herring Prospectus (DRHP) for its IPO with Sebi on February 26.

Almost all brokerages were positive on the initial public offer (IPO) and some had predicted up to 60 per cent upside from the IPO price range of Rs 750-755, given its dominant position in the credit card market and strong parentage, SBI Cards is well placed to benefit from the rising trend of digital payments and e-commerce.

SBI Card’s IPO had managed to attract bids worth Rs 2 trillion, in spite of challenging market conditions. The 100-million share offering generated close to 2.7 billion bids (26 times). The qualified institutional buyers (QIBs) portion of the IPO was subscribed 57 times, followed by high networth individual (HNI) (44 times) and shareholders (25.4 times). The employee segment registered 4.7 times subscription, while the retail portion being subscribed 2.5 times.

SBI Cards is the second largest credit card issuer in India, with 18.1 per cent market share in terms of the number of credit cards outstanding as of November 30, 2019. SBI Cards offers various types of credit cards considering the need of retail clients (viz. Lifestyle Cards, Rewards, Shopping, Travel and Fuel). It also offers corporate cards and is the largest co-brand credit card issuer in India. It also issue card in partnership with smaller or regional banks.

“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,” ICICI Securities said in an IPO note.

Although the valuations are a bit on the higher side, we are positive on the future outlook of the company given favorable industry scenario, large untapped SBI Bank customers and strong financial track record, Angel Broking said.

According to Emkay Global Financial Services, the Indian credit card industry remains significantly underpenetrated (4 cards/100 people vs. >30 cards/100 people in developed economies) and the brokerage firm believe that SBI Cards, being the second-largest pure-play credit card player with a strong parental lineage (SBI), is well-positioned to maintain strong growth trajectory and sustainably superior return ratios, thereby commanding premium valuations.

What should investors do now?
 

Most analysts say that investors who have a long-term investment horizon should stay put. "Normally, if an issue fails on listing, it takes, at least, 6 months to 1 year to stabilise. Hence, if one has 3-5 years of investment horizon, holding the stock will be a wise decision, but those investors who were looking for listing gains should sell the stock," suggests AK Prabhakar, head of research at IDBI Capital.
 

Siddhartha Khemka, Head of retail research at Motilal Oswal Financial Services (MOFSL), too, believes that long-term investors shouldn't be worried about the tepid listing of the stock. The market conditions, Khemka says, has changed completely since the issue was launched. So, at a time when bluest of the blue chip companies and solid businesses have corrected up to 40 per cent, how can SBI Cards won't get affected. 
 

"Investors who didn't get the allotment should utilise this opportunity to start accumulating the shares but they should not put their entire money at one go. "Buy on dips" strategy is the best approach to follow," Khemka advises.