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Coronavirus Panic Weighs On Blockbuster SBI Cards IPO

SBI Cards and Payment Services' public offering may exceed the $1.4 billion target
SBI Cards and Payment Services' public offering may exceed the $1.4 billion target

As India's first billion-dollar share sale in more than two years and the only credit card firm in the country to go public, SBI Cards and Payment Services' public offering may exceed the $1.4 billion target. The question is by how much in the face of the coronavirus outbreak.

SBI Cards began taking orders on Monday, the day the country's stocks fell for the seventh day amid the virus scare. At the upper end of the price band of Rs 755 apiece, the offering will fetch Rs 103 billion ($1.4 billion) and value the issuer at over 49 times its trailing 12-month earnings -- the costliest among global peers including Visa Inc. and American Express Company.

With the world reeling from one of the biggest risk sell-offs since the global financial crisis, further coronavirus-fueled declines in India may impact the IPO's over-subscription rate, which in turn may limit the premium on listing. For instance, Indian Railway Catering & Tourism Corporation's share sale in October attracted bids 112 times the IPO size and the stock went on to list at double the offer price.

"The subscription will be good, but it will not be up to its true potential had it come three weeks ago," Sameer Kalra, a strategist at Mumbai-based Target Investing, said by phone. Mr Kalra said he won't bid for the IPO due to high valuation and increasing competition from alternative digital payment platforms. "I'd rather buy it after the listing."

Coronavirus Panic Weighs On Blockbuster SBI Cards IPO

Pricey

The sale was 39 per cent subscribed as of 5 p.m. in Mumbai on Monday, with bidding to continue until Thursday. SBI Cards is 74 per cent owned by State Bank of India, the country's largest lender, and Carlyle Group has the remaining 26 per cent. SBI is selling 4 per cent stake, while Carlyle is paring 10 per cent of its holding, according to the sale document.

SBI Card's expensive valuation isn't deterring investors who are buoyant over the industry's prospects. The company has a 18 per cent share of the market where the number of cards outstanding per 100 people is less than 3 versus 320 in the U.S., 73 in Brazil and 42 in China, according to Axis Securities. It is this potential for growth that has most analysts recommending the IPO.

"The comparison with Visa and Mastercard may not be right as they have already penetrated the market, while SBI Cards is part of a developing market," said Deven Choksey, who oversees investment and research at K.R. Choksey, a Mumbai-based wealth manager. "Growth outlook and the unique proposition may keep valuations higher for this company."

The company on Saturday raised Rs 27.7 billion from as many as 74 anchor investors including the Singapore Government and Kuwait Investment Authority, at the upper end of the price band.

Brokerage's take on the IPO:

Emkay Global

Strong growth prospects, superior return ratios and parental lineage call for premium valuations

Issue offers opportunity for investors to invest in a direct play on India's consumerism, digital payment story

ICICI Direct

High business growth, strong return ratios justify valuation

Technology upgrade, tie-ups and reward offers to help increase transaction volumes, support business growth and profitability

HDFC Securities

Company plans to tap new segments in high-income category to generate higher card spends

Technology infrastructure and systems are key strength

Motilal Oswal Securities

Company has grown its business faster than market over the past two years both on number of cards (35 per cent CAGR over FY17-19) and card spends (54 per cent CAGR).

Likely to generate high investor interest as it is the first in credit card segment to get listed; recommend subscribe