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SBI Cards IPO overwhelming response: Oversubscribed by 26 times

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SBI Cards IPO
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Amidst the fear of coronavirus outbreak, India’s first initial public offering by SBI and one of the largest float in recent years was oversubscribed with large investors making the bulk of the purchases.

Overwhelming Response for SBI Cards IPO

SBI Cards IPO, which has been subscribed over 26 times is closed on 5th March 2020 for retail investors. For QIB or Qualified Institutional Buyers, the issue was closed on 4th March, a day before final closing, the category of whom was subscribed 57.18 times as per BSE data. The issue received bids for 225.09 crore shares, as against 10.02 crore shares on offer.

Key Factors of SBI Cards IPO

  • Good Profitability
  • High Return Ratios
  • Strong Growth Potential

The price range of the offer was fixed at Rs. 750-755 per share for retail investors. SBI Cards expects to raise around ₹10,350 crores through the IPO. Just ahead of the IPO, SBI Cards had raised ₹2,769 crores from 74 anchor investors. The IPO comprises a fresh issue of ₹500 crores and an offer for sale of 13,05,26,798 shares.

Lead Managers for the SBI Cards IPO

  • Kotak Mahindra Capital Company
  • Axis Capital
  • DSP Merrill Lynch
  • HSBC Securities and Capital Markets (India)
  • Nomura Financial Advisory and Securities (India)
  • SBI Capital Markets

A brief discussion on SBI Cards IPO

SBI Cards and Payment Services Limited is the credit card support of State Bank of India. The company sold a part of its promoter holdings while issuing the fresh shares in IPO.

Currently, with an 18% market share, SBI Cards is the second-largest credit card issuer. SBI holds 76% shares in the company while the Carlyle Group holds the remaining 24% shares. For the half-year ended September 30, the company’s revenue was Rs 4,677.20 crore while its net income was Rs 725.88 crore.

SBI Cards, the subsidiary of India’s largest bank The State Bank of India (SBI) was launched in October 1998. SBI Cards offers the widest range of credit cards catering to all types of needs of consumers such as shopping, dining, travel, fuel, and movies amongst others with great benefits, and steal deals. With a huge array of partner retail stores, dining, hospitals, airlines, hospitality, travel and many more.

SBI Cards IPO

Lot Size and Expected Allotment Finalisation

The lot size is 19 shares which means bids can be made for a minimum of 19 equity shares and in multiples of 19 thereafter. At the upper end of the price range of ₹755, one lot will cost ₹14,345.

Link Intime India Private Limited is the registrar of the IPO and it will manage the allocation. According to brokerages, the share allotment is likely to be finalized on 11th March.

Listing Date

Shares of SBI Cards will be listed on the National Stock Exchange and Bombay Stock Exchange of India. Though the date is not yet confirmed it is likely to take place on 16th March 2020.

When SBI cards will list on the exchange, it will become the only listed company in India to have such achievement.

Being the first in such a segment, it can generate high investor interest and will benefit from the rising trend of digital payments and e-commerce.

Is there any reservation for SBI shareholders and employees?

  • For SBI shareholders, about 10% of the issue size or we can say 1.3 crore shares are reserved for the SBI shareholders

To qualify for this category, SBI shareholders should have had SBI shares as on February 18, 2020

  • For eligible employees of SBI and SBI cards, 18.4 lakhs shares were reserved who further get an employee discount of Rs. 75 per equity share

Risks factors that may have an impact on SBI Cards

  1. SBI Cards tough competition from new aged fintech based payment modes like Unified Payment Interface (UPI) and mobile wallets.
  2. Slower economic growth which might result in rising Non-Performing Assets (NPA)
  3. Non-regulation of interchange fees for credit cards or interest rates charged by credit card companies

Our Take

Despite tough market conditions, the IPO did well as SBI Cards is a high-quality unique franchise from the strong SBI stable. Its business model has vibrated with the best of institutional Investors across the world. Most brokerages had recommended their clients to subscribe to the SBI Cards IPO. 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. Strong growth, stable asset quality, and superior return ratios provide comfort and justify the premium valuation. Further, being the first in the segment to get listed, it could generate high investor interest.

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