SBI Cards and Payment Services Limited (SBI Card), a subsidiary of The State Bank of India (SBI), the largest bank in India got its Initial Public Offering (IPO) listed on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) on Monday, March 16, 2020. After this listing SBI Cards became the fifth company under SBI Group to be listed on the stock exchanges. SBI card was launched in October 1998 by the State Bank of India and GE Capital. It was incorporated as SBI Cards and Payment Services Private Limited (SBICPSL) and has its headquarters located in Gurgaon, Haryana.
What is an IPO?
Before going any further into the topic, we must first understand what an Initial Public Offering or IPO means:
Initial public offering (IPO) or Stock Market Launch is a type of public offering in which shares of a private corporation are sold to institutional investors and retail (individual) investors in a new stock issuance. This process, colloquially known as floating, or going public, a privately held company is transformed into a public company. The funds raised by companies, by going public through IPO are used for working capital, debt repayment, acquisitions, and a host of other uses.
The investor can apply for IPO Stocks by filling an IPO Application Form. These forms are usually available with stockbrokers for free. The investor can also apply for IPO Stocks online through Online Stock Brokers like ICICI Bank, Share Khan, Reliance Money to name a few.
About the SBI Cards IPO
The public issue of SBI Cards consisted of a fresh issue of Rs 500 crores and offer for sale of more than 13 crore equity shares by State Bank of India and global investor CA Rover Holdings, an affiliate global investment firm of Carlyle Group Company. After this issue, the shareholding of State Bank of India in SBI Card was reduced to around 70 percent and that of CA Rover Holdings to around 16 percent as SBI sold more than 3.7 crore shares and CA Rover Holdings over 9.3 crore shares through IPO for sale.
The rupee 10,340 crores public issue of SBI card received a tremendous response from investors and was oversubscribed by 26.54 times during the subscription period of 2-5 March 2020.
The price band for the issue was Rs 750-755 and the shares could be applied for in lots with each lot consisting of 19 shares and the maximum number of lots which could be applied for were 13, which meant a total of 247 shares. It was so because as per the SEBI guidelines for the issue, a single retail investor could apply for a maximum amount of Rs 2,00,000 in the issue in the retail category without being considered for any other category. On the basis of the higher end of the issue price band, the minimum amount to be there in a particular lot was to be Rs 14,345 and the maximum was Rs 1,86,465.
Growth of SBI Cards over the years
SBI Cards is the second-largest credit card issuer in India and has become the first in the credit card industry to release its IPO. It has a strong position in the Indian credit card market as it has a 17.6% and 18.1% market share in terms of the number of credit cards outstanding as of 31 March 2019 and 30 November 2019 respectively and a 17.1% and 17.9% market share in terms of total credit card spend in fiscal 2019 and in the eight months ended 30 November 2019 respectively, according to RBI. With remarkable growth and profitability, the total credit card spends and credit cards outstanding grew at a CAGR of 34.5% and 54.2% (March 2017 to March 2019).
Objectives for the issue
The company objective of SBI Cards and Payments Services Ltd IPO offer comprises of a Fresh Issue and an Offer for Sale-
- The Offer for Sale- The objective of the Offer for Sale is to allow the Selling Shareholders to sell an aggregate of up to 13,05,26,798 Equity Shares held by them. The company will not receive any proceeds from the Offer for Sale.
- Fresh Issue- The net proceeds of the Fresh Issue, i.e. Gross proceeds of the Fresh Issue less the Offer Expenses apportioned to the Company (Net Proceeds) are proposed to be utilized for augmenting the capital base to meet the company’s future capital requirements.
SBI Cards has 18 co-branded partnerships, the highest in the industry when compared to other players. They offer an extensive credit card portfolio to individual cardholders and corporate clients which includes lifestyle, rewards, travel and fuel, shopping, banking partnership cards, and corporate cards covering all major cardholder segments in terms of income profiles and lifestyles. Also, it is supported by a strong brand, as it provides access to SBI’s extensive branch network across India.
“Generally, the company which has niche business and first listing in the particular industry always attracts a lot of interest from investors. Hence SBI Cards is the first one to list in the card industry business and on top of that, it is a consumer-oriented business company growing higher than industry. Given healthy financials, niche business, and first time listing from cards industry, there is a lot of interest for SBI Cards,” said Siddhartha Khemka, Senior Vice President, Head-Retail Research at Motilal Oswal Financial Services.
SBI card believes that they have achieved such a position in the Indian Credit Card Market by leveraging their strengths and capitalizing on India’s favorable economic and demographic changes, including its strong macroeconomic performance, rising affluence, increasing consumer demand, rapid urbanization and the growth of e-commerce platforms.
Their focus on technology and data analytics gives them an edge over their competitors. They have a diversified customer acquisition network that enables them to engage prospective customers across multiple channels. According to CRISIL (Credit Rating Information Services of India Limited) Report, SBI is the leading player in open market customer acquisition in India. They have also established a proven track record of consistently generating profits over the past three fiscal years.
Despite the above-mentioned advantages and the speculations by various investors about a big opening for the issue due to its high demand in the market the issue did not fair well. Not only it failed to register a listing profit for its investors but it closed at a price of Rs 683.20 on BSE, down 9.51% against its issue price.
Some attribute this due to the fear in the investors regarding the coronavirus pandemic and the effect it has caused to the investor’s sentiment along with the economic slowdown which is being experienced worldwide.
Despite this, it is widely believed that this negative effect is only short term and once everything settles and comes back to normal the share price would not only stabilize but give a return of 15-20% on the issue price and could achieve a level of Rs 1000 and above after a year in terms of long term. Taking in view the current scenario and the market conditions worldwide it is advisable to only invest the amount of money on which you can afford to take risk.
Written by Yuvraj Sabharwal
(Yuvraj is a first-year student of SD College, Chandigarh)