Will the SBI cards IPO become a bumper hit?

We all know about the IRCTC IPO which was probably amongst the biggest bumper hits in the primary markets. It was followed by Ujjivan Small Finance Bank IPO, and Affle India IPO was also launched in 2019, which was also quite successful. These were probably the biggest IPOs in 2019. Now in 2020, a new IPO is coming soon which is expected to be a bumper hit.

This most awaited IPO is SBI Card IPO which is likely to be open for subscription in the second week of February.

The credit card industry in India is at a fast growing pace these days, but still there are only 3-4 credit cards per 100 people in India. The same in US is around 320 for comparison. There are many card issuers in the Indian market with SBI cards having a share of around 18% which is the second largest.

What makes SBI cards a potential contender?

In 2018-19, credit cards accounted for 30%-35% of overall e-commerce payment value. Out of this, almost 35% users were millennials – a figure that has doubled in 2018-19 from 19% in 2014-15. As per CRISIL Research, the industry is expected to reach a value of INR 14.4 trillion by 2024 and people below 25 years are the key drivers of it.

SBI cards is currently the second largest card issuer in India with a base of around 9.8 million after HDFC bank. The credit market in the country has doubled in the last few years. The expected credit cards subscribers are expected to be around 53 million. SBI cards is characterized by its low annual costs and lower rates of interest than the competitors.

The growth in the e-commerce industry is one of the main factors for the boom in the credit card industry. The facility to convert your transaction to monthly installments or EMIs and the host of offers that the bank and companies offers are also one of the reasons for the boom in the plastic money sector.

All you need to know about the SBI cards IPO

SBI cards and payment services limited which is a subsidiary of the State Bank of India and have Carlyle Group as a partner, is soon going to launch its IPO or Initial Public Offering. The state Bank of India has already launched its IPO few years back and is now trading on the stock exchanges. The card division is expected to launch its IPO in this month, and it will be the first time that a standalone card company will launch an IPO.

The IPO is expected to have around 130 million shares for sell to the investors which are expected to be valued around 9600 crore INR, making it the biggest IPO of this financial year. The IPO is expected to be released around mid-February with no official confirmations as of now.

The SBI cards is already trading at a premium of around 200-250 INR per share in the grey market which can be a hint about the IPO going to be a bumper hit. The expected valuation of the company should be around 58000 crores in the IPO. The price band of the IPO is expected to be around 600-700 INR per share and a lot size of around 20 shares per lot.

What’s the risk involved?

On the flip side, only 5% of Indian’s consumption per capita is through credit cards. Though the company has huge prospects, the determining valuation places the price in the optimistic scenario. This leaves less room for the future stakeholders to profit. Payment companies invigorated by the UPI infrastructure, are biting at the heels of credit card companies.

Considering all these factors, the IPO is recommended only for those who have an appetite for high risk.

There will be a reserved quota in the IPO for the current shareholders of SBI. The rolling out of IPO is a very long process and requires the assistance of various entities. If you plan to invest in the SBI IPO, all you need is a DEMAT account and enough funds in your savings account for investment. It is also necessary to know the details of the company before investing.

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