SBI Cards IPO, the most awaited share sale of 2020, has hit the market today. The four-day share sale through which SBI's credit card arm aims to raise over Rs 10,000 crore is likely to see a bumper response from investors. All analysts and brokerages have given a subscribe call to the IPO. In fact, its shares are seen listing at 40-50% premium at the upper end of issue price at Rs 1,000 per share. Price band for the IPO has been fixed at Rs 750 to Rs 755 per share.
But the IPO may witness some surprise on the negative side too. The issue is likely to be affected by jitters from coronavirus which has led to a crash in global markets.
SBI Cards IPO: Grey market assigns 40% premium, listing seen around Rs 1,000 per share
Sony Mathews, senior market strategist at Geojit said, "The market fall might dampen sentiments a little as the margin of oversubscription may be reduced compared to what it would have been. This might have an effect on the listing day gains of the stock. The stock is still a long-term fundamental buy with good prospects and so should not affect long-term investors. Barring any other unforeseen possibilities, the issue is still expected to breeze through."
Also, the issue has high valuations which may play a spoiler in its stock market journey. Price to book value multiple of SBI Cards stands at 12 times whereas the P/BV of a similar consumer credit business such as Bajaj Finance is 6.8.
The IPO has hit the market when Nifty is down 8% and Sensex has lost over 7% since the beginning of this year. Since shares in an IPO get listed on bourses with a time lag, SBI Cards IPO is likely to see fewer bids on uncertainty from Coronavirus.
SBI Cards collects Rs 2,769 crore from anchor investors
With Sensex and Nifty turning negative for 2020 on account of coronavirus effect in global markets, sentiment has weakened which may affect stocks to be listed on bourses this year.
Selling in global and Indian markets has intensified since February 19 after coronavirus cases spread fast across the globe threatening to derail global growth. Sensex which stood at 41,323 on February 19 lost 3,026 points to 38,297 on Friday in just six sessions.
Nifty too fell 924 points from its February 19 level of 12,125 after hitting intra day low of 11,175 on Friday. Although, Sensex has risen over 500 points and Nifty gained 232 points in trade today, the direction of market near and on the debut day will affect the listing price of the IPO.
With global markets still not out of woods due to rising cases of coronavirus, weakness in market sentiment could percolate into Sensex and Nifty and dampen sentiment around the listing day.
However, Jaikishan Parmar, senior equity research analyst at Angel Broking said weak market conditions won't affect the performance of IPO.
"Investors will apply for SBI Cards IPO, despite weak market conditions. As they are getting a company with favourable industry scenario, large untapped SBI Bank customers will help them to continue to grow at a healthy rate and strong financial track record.
The firm has immense growth potential given low penetration and large untapped SBI customers."
The firm caters to significantly underpenetrated Indian credit card market. Number of credit cards per 100 people is 3, whereas in developed/developing countries, it is greater than 30. As on Q3FY2020, credit card to debit card ratio was 3.7% for SBI Cards compared to HDFC Bank - 45%, Axis Bank - 28% and ICICI Bank - 18%, which indicates huge scope for mining SBI customers. Credit card spends as percentage of GDP for India is 3%, while that for other countries is greater than 10%. All the above factors clearly show that there is a huge room for the credit card industry to grow.
We believe, with strong parentage and healthy capital adequacy, SBI Cards should be able to grow at healthy CAGR and gain market share."
SBI Cards IPO to open on March 2: Should you subscribe to the issue?