Upcoming SBI group IPO is the talk of town as investors eye bumper listing gains

Surbhi Jain
SBI Cards IPO, State Bank of India

The upcoming SBI Cards and Payment Services IPO, expected to be the biggest public issue of the current financial year 2019-20, has already caught market attention with investment experts giving it rave reviews. State Bank of India is set to launch SBI Cards IPO in February, planning to raise Rs 9,600 crore. "SBI cards should do well as it’s a unique offering and credit card spending is a growing space in India. Internationally also MasterCard and Visa as stocks have done very well lately," investment advisor Sandip Sabharwal told Financial Express Online. He said he expects SBI Cards to be a bumper IPO.

However, key risks to the SBI group's cards and payments unit include "regulatory risk on MDR/interchange fees, higher capital requirement and rising asset-quality risk given weakening macros or employment rates," Emkay Global had said in a recent research report. SBI Cards had filed Draft Red Herring Prospectus (DRHP) with market regulator SEBI last year in November. The company will offer up to 130,526,798 equity shares via offer for sale route, according to the draft document filed with SEBI. This will include up to 37,293,371 share sale by SBI and up to 93,233,427 shares on offer by Carlyle Group (CA Rover). In addition, SBI Cards will also issue fresh equity shares of Rs 500 crore.

Long term play

It may be noted that SBI Cards is the second-largest credit card issuer in India with an 18 per cent market share. "A new segment of the financial industry would be available for investors post SBI Cards listing. It can be an exciting opportunity for investors. However, we should also wait for the actual price at which it comes. If pricing is very rich then the application may not be rewarding for short term listing gains. Long term is a good opportunity," Narendra Solanki, Head of Fundamental Research – Investment Services, Anand Rathi Shares and Stock Brokers, said.

Rising digitisation a good opportunity for India

The rising digitisation and under penetration of cards can offer a big credit card opportunity to India. "Indian rating and research agency CRISIL estimates that the Indian credit card industry's outstanding book will see 23 per cent CAGR to reach USD 47 billion by FY24E from current USD 14 billion, which will still be just about 6 per cent of the US's current outstanding card debt," Emkay Global said.

The book-running lead managers of the issue are Kotak Mahindra Capital, Axis Capital, DSP Merryl Lynch, Nomura Financial Advisory, HSBC Securities and SBI Capital Markets."In the case of SBI Cards, if we rely on the fundamental valuations, they translate into Rs 150-175 higher than the price at which it is being offered in the IPO. The grey markets are nothing but trying to reflect these valuations even before the entity is listed. Though the exact amount of valuations cannot be derived from the grey market activities, we can fairly expect a gain of 10-12% above the listing price once it gets listed, " Technical analyst Milan Vaishnav, CMT, MSTA, told Financial Express Online.

The list of biggest issues ever includes Coal India of Rs 15,100 crore, Reliance Power Rs 11,563 crore, GIC Re Rs 11,370 crore, ONGC Rs 10,543 crore.