SBI Cards IPO

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TradingFunda

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SBI Cards IPO

Issue opens on 2. March'20
Issue Closes on 5. March'20
Price Band Rs 750 - 755
IPO size Rs 10289.5 Cr— 10354 Cr
Offer for sale 9789.5 Cr to Rs 9854.8 Cr
Expected MCAP: Rs 69955.6 to Rs 72769.2
Equity Dilution at 0.7% (Mainly an OFS) - Read this What is OFS ?
Valuation: 9MFY20 EPS annualized,
20 P/E at 45.5x & 45.8x lower & upper band respectively

So, what does it means for SBI?
SBI will sell 3.73cr shares or 4% in the co.
SBI will get Rch2815.7 cr., from the IPO
This would strengthen their Tier I ratio by 15bps (Q3FY20 RWA taken)
Post stake sale; SBI will hold 69.5. stake in the co.
Giving it a 20% holding discount rate; the holding will work out to Rs 44.2 per share in SOTP (Taking SBI's card price of .755 per share)

SWOT analysis

Strength
  • Growth of the business has been strong
  • 2nd largest in terms of market share (not easy to get market share where top 4 are 60% of market)
  • Co-branding is a great strength which attracts customers
  • 95-97% of cards are charged fees unlike peers which gives some of the cards for free
  • Diversified custorner acquisition & credit card offerings
Weakness
  • Over dependence on SBI
  • large ticket sized NPAs do not lead to recovery
  • 100% unsecured lending; therefore no collateral
Opportunities
  • YONO is a great digital penetration for the co.
  • India is under-penetrated in terms of credit card mid
  • customer base provide growth opportunity to the co.
  • Focus on Tier II, Tier III & smaller cities ahead Govt's focus on digital transactions
Threats
  • MDR (Merchant discount rate) is a big threat to the co ; any regulatory changes in MDR can disrupt the entire business model of SBI cards
  • Corporate NPAs In a slowdown economy
  • Vulnerable to risks arising from failure of adequate adhering by employees
  • Provision for NPAs may be lower than receivables
  • Competition from bank, NBFCs & payment banks
 
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