Payment solutions provider SBI Cards and Payments Services Ltd., a subsidiary of India’s largest public lender State Bank of India (SBI), is set to launch its Rs10,352cr IPO on March 02, 2020. The much-awaited SBI Cards IPO will be open for four days, unlike most other IPOs that usually remain open for 3 days. What’s interesting about the SBI Cards IPO is that the fourth day, March 5, is exclusive to retail investors. Accordingly, the offer will close on March 4 for institutional buyers.
This will be the first credit card company to list in the Indian domestic markets. Moreover, the company is in good financial health and posted a net profit of Rs862cr in FY19, i.e. 12.3% of the total revenues.
SBI Cards came into existence in 1998 as a joint venture (JV) between GE Capital and SBI. It holds an 18% market share (approx. 9.5 million cards) of the overall credit card business in India as per latest analyst reports. After divesting its stake to US-based investment company Carlyle Group and SBI in 2017, GE Capital exited the business. As of now, SBI holds a 74% stake in the subsidiary while Carlyle holds the remaining 26% stake.
Post the IPO, SBI’s holding is expected to drop by 4% while Carlyle’s stake in the company would reduce by 10% with the remaining stake going public.
Let us now look at some finer details of the issue.
With a price band of Rs750 at the lower limit and Rs755 at the higher, the SBI Cards IPO comprises a fresh issue of Rs500cr with an offer for sale (OFS) of up to 13.05cr equity shares. At the lower range, the IPO would raise Rs10,289cr for the promoters, while at the higher range it is likely to raise Rs10,352cr. Going by the price band, bids can be made for a minimum of 19 equity shares and in multiples of 19 thereafter. Accordingly, you would need at least Rs14,345 to participate in the IPO.
While it is tough to answer this in advance, being the first-of-its-kind issue bodes well for the SBI Cards IPO. Considering the government’s push to increase digital transactions and the subsequent rise in the same coupled with the growing market share of the e-commerce business model is supposed to further boost the offering.
Most brokerages are positive on the IPO and have advised investors to “subscribe”.
The offer reserves approximately 18 lakh shares for eligible employees and 1.31cr shares for SBI shareholders. Additionally, employees of SBI will also receive a discount of Rs75 per share on the final issue price, depending on their eligibility. Considering these particulars, i.e. being an SBI shareholder as well as an employee, one can make three applications for the IPO in total.
Eligible individuals can apply for a maximum of 247 shares (13 lots) in the retail quota and the shareholder quota (if applicable) each. Moreover, all applications can be made through a single demat account.
Additionally, 50% of the IPO is reserved for QIBs (Qualified Institutional Buyers), 15% for Non-Institutional Investors (NIIs), while the rest (35%) is for retail investors.
Being the first-of-its-kind issue and considering the high public interest in this IPO, it is most likely that the shares will list at a premium. As mentioned earlier, most brokerage houses have acknowledged the SBI Cards IPO positively and are expecting strong oversubscription, which further boosts investor confidence.
Moreover, SBI Cards is the second-largest credit card player in the country, only behind HDFC Bank.
Reiterating the points mentioned above, i.e. the government’s digital push as well as the online shopping preferences of the current generation, it is safe to assume that the SBI Cards IPO is likely to be a hit.
Applications for the SBI Cards IPO can be made both offline and online, wherein individuals can use the ASBA (Application Supported by Blocked Amount) route to apply. Some brokers are also taking applications through the UPI mode.
To apply for the IPO, you need to make an application through your broker. Once you have decided the number of lots that you wish to apply for, the price at which you are applying, and confirm the same, the required amount is locked out of your bank account. Once the IPO subscription period ends and the listing date is finalized, the shares are issued to the applicants. In case of oversubscription, which is expected to happen, the applicants are shortlisted through a lottery.
The SBI Cards IPO is the biggest issue so far in 2020. Considering all the interest it has received as well as the positive reviews from market experts, interested individuals should definitely make their bids for the issue.
The listing date for the shares is expected to be March 16, according to the draft red herring prospectus (DRHP) with SEBI.