hi everyone, so a lot of people on this forum are going to or thinking about going to apply for SBICards IPO, here are some things you need to know about the company:
the company is issuing 13crore equity shares out of total 93crore shares, that’s roughly 13.5-14% float at 750-755 a share, making the valuation of the company at 70,000crore, it’s the only company of credit card issuer getting listed in the indian stock exchanges, so for comparison i am going to use some international companies
as per FY2019 profits, it’s 862crore and EPS of 9.4rs, so we get a P/E ratio of 80, many justify the growth for this high PE, but not to forget it has the highest PE ratio of any matured financial company listed in indian markets, take HDFCBank or KotakBank for example, both have a modest PE of 25 to 35 respectively.
most of the media and analysts will tell you that creditcards is a growing industry and has huge potential, but do you think that credit card is different than retail banking & is in a super-normal growth phase in India? think again. you just need to read beyond the headlines & dig in more data. SBI cards has been around for more than 20 years now in market.
while SBI has crores of customers, most are not credit worthy & have marginal balance. additionally, most SBI customers are old generation conservatives that don’t like to use digital payments at all. A small anecdote fits well here.
while they have been gaining customer base at a very good rate, card company doesn’t make money by issuing cards. it wants people to use cards for credit. the card usage for customers of SBI was not even 20%. So 80% of those never used the card even once, so it’s just a dressing on the pale salad
so, with a FY’19 PE of 80 , if someone tries to sell me the story of growth in cards issued over last 5 yrs, I’m not going to buy it.
just to put this number in context, see the market cap of Indian banks below:
HDFC Bank - $ 92 BN
ICICI Bank - $ 45 BN
Kotak Bank - $ 44 BN
Axis Bank - $ 28 BN
IndusInd Bank - $ 11 BN
do you think that a credit card issuer for SBI can be valued more than indusind bank?
let me know your thoughts on this issue, would love to hear a different narrative
going back to the IPO, is it fairly valued?, no, you will be end up paying 750rs for something worth 250rs
will it get oversubscribed and potentially open higher than the issue price?, probably
will retail investors end up subscribing for it, looking at the gains of IRCTC and going by FOMO? absolutely yes
source: @anuragsingh_as on twitter
