After SBI Cards IPO gets SEBI approval, what should be investment strategy? Here’s what analysts say

SBI Cards IPO is expected to offer a good option to the investors as the business runs on good margin and low-capital requirement, said analysts.

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Sebi's observations are necessary for any company to launch public issues such as initial public offer, follow-on public offer and rights issue.

SBI Cards IPO is expected to offer a good option to the investors as the business runs on good margin and low-capital requirement, said analysts. The SBI Cards received in-principle approval from the capital markets regulator SEBI for floating an IPO late Tuesday evening. The country’s largest PSU bank SBI would divest up to 4 per cent stake in SBI Cards through the issue. “SBI Cards IPO should do well given the fact that it will be a unique offering in the financial services space and low-risk business with good margins and low capital requirements. Valuation of such a business has to be on the Price to Earnings ratio. It should be a good option for investors”, investment advisor Sandip Sabharwal told Financial Express Online.

The SBI Cards IPO would offer a fresh issue of Rs 500 crore and an offer for sale of up to 13,05,26,798 equity shares, according to the DRHP filed with SEBI in November 2019. It includes up to 3,72,93,371 equity shares by SBI and up to 9,32,33,427 equity shares by CA Rover Holdings. “It’s an excellent opportunity for long term investment as insurance credit cards and AMC are businesses for the future. In the US, Visa and Mastercard have seen superior returns in last year. Globally market cap of credit card issuers is close to new highs. In the Indian context, SBI is the oldest and most superior PSU bank as safe as RBI”, Sanjiv Bhasin, Director, IIFL Securities, told Financial Express Online last month.

SBI currently holds 74 per cent and CA rover Holdings (a group company of Carlyle) holds 26 per cent stake in SBI Cards. The book-running lead managers for the SBI Cards IPO are Kotak Mahindra Capital Company, SBI Capital Markets, DSP Merrill Lynch, Axis Capital, HSBC Securities and Capital Markets, and Nomura Financial Advisory and Securities.

Technical view

“Any business, be it SBI Cards or any other, gets valued by demand and supply law and market forces only after it is listed. However, before that, the only way to value it would be to look at the internals of the unlisted entity and compare it with its peers”, technical analyst Milan Vaishnav, CMT, MSTA, told Financial Express Online.

“…In the case of SBI Cards, if we rely on the fundamental valuations, they translate into 150-175 Rs higher than the price at which it is being offered in the IPO. Also, these valuations are derived through the fundamental factors that take into account the fact that the SBI Cards is the second-largest issuer in the country with over 9 million issued cards. 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…”, he also said.

Shares of SBI were trading at Rs 322.85, down 1.50 points, or 0.46 per cent on NSE.

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