Investment Insight into SBI Card's Initial Public Offering (IPO)

As we navigate the ever-evolving landscape of the Indian financial market, Initial Public Offerings (IPOs) continue to attract significant attention from investors. One such notable IPO is that of SBI Card and Payment Services Limited, which has garnered massive interest despite a challenging economic climate. In this article, we delve into the factors that investors need to consider when making a decision about SBI Card's IPO.

Market Position and Profitability

Frankly, whether SBI Card's IPO is a good deal or not ultimately depends on the individual investor's assessment of the market. From my perspective, the IPO presents a compelling opportunity given SBI Card's market position and financial performance. With the company currently holding the second position in India's credit card sector, boasting profitability and an untapped potential customer base, the outlook seems promising.

According to market data, SBI Card, a subsidiary of State Bank of India (SBI), the largest commercial bank in terms of deposits, advances, and branches in India, occupies a 18.0 market share of the Indian credit card market. This positioned SBI Card ahead of numerous digital payment wallets that have emerged in the market.

Investor Interest and Listing Price

Investors have shown a massive interest in participating in SBI Card's IPO, with the offering being oversubscribed by 22 times. Despite the recent dips in both the Indian and global stock markets, the overwhelming demand indicates that the listing price is likely to be above the 755 rupees per share allotment price announced by SBI. In my opinion, the initial listing price should be around or above 800 rupees, providing a good return for investors.

Company Overview and Financial Performance

SBI Cards and Payment Services Limited
Incorporated in 1998, SBI Cards and Payment Services Limited is India's second-largest credit card issuer and a subsidiary of SBI, a leading commercial bank. As of September 30, 2019, the company held an 18.0 market share in the Indian credit card market, with 9.46 million credit cards outstanding and total credit card spends of 1032.65 billion in fiscal 2019.

Positives

Second Largest Credit Card Issuer: With 9.46 million credit cards outstanding, SBI Card holds a 18.0 market share, making it the second-largest credit card issuer in India. CAGR Growth in Total Income: The company's total income has grown at a Compound Annual Growth Rate (CAGR) of 44.9%, reaching a total of 6500.29 million in fiscal 2017 and 8627.19 million in fiscal 2019. Growth in Net Profit: The net profit increased at a CAGR of 52.1%, from 3728.59 million in fiscal 2017 to 8627.19 million in fiscal 2019. Stable Returns on Average Equity: Return on average equity has remained steady at 28.5 in fiscal 2017 and 28.4 in fiscal 2019. Increased Return on Average Assets: While the return on average assets increased from 4.0 in fiscal 2017 to 4.8 in fiscal 2019. Diversified Customer Acquisition: SBI Card operates in 133 Indian cities, offering diverse credit card products. Strong Brand and Extensive Network: As a subsidiary of SBI, it benefits from an extensive network of 22007 branches across India. Diversified Credit Card Offerings: SBI Card offers a range of credit card products, including lifestyle rewards, travel and fuel, shopping, banking partnership cards, and corporate cards.

Risks

Credit Risk Management: The inability to manage credit risk could be a potential risk for SBI Card. MDR Cap: Regulatory caps on merchant discount rates (MDR) charges remain a key concern. Co-Branding Partnerships: SBI Card's retention of existing co-branding partners is another factor to consider.

Competitive Landscape

Other companies in India that engage in businesses similar to SBI Card include:

ICICI Bank Limited: A leading private sector bank in India, offering a wide range of credit cards. HDFC Bank Limited: A diversified financial services company, known for its robust credit card portfolio. Axis Bank Limited: A leading private bank in India, known for its strong credit card division.

While these companies pose competition, SBI Card's strong brand and market position make it a formidable player in the Indian credit card market.

Conclusion

The decision to invest in SBI Card's IPO is a personal one, influenced by an individual's risk tolerance and assessment of the broader market. With a solid market position, robust financial performance, and a diversified customer base, SBI Card presents a compelling investment opportunity. However, investors should carefully consider the risks and factors outlined to make an informed decision.