SBI Cards IPO: SBI Cards in for a bumper IPO going by grey market swipes

SBI Cards & Payments Services is trading at a Rs 200-250 premium in the grey market ahead of its proposed share sale in February, said three dealers involved in such trades. The company is likely to be valued at Rs 57,000-60,000 crore in the initial public offering.

“There is lot of demand for unlisted shares as the theme is driven by the Indian consumption story,” said Abhenav Khettry, the managing director of financial services advisory firm Vyana Wealth. “Investors realise that it’s a huge business opportunity considering that SBI Cards’ play is in a niche segment.”

SBI Cards is billed as a proxy to high-margin credit card business. It is the only standalone company focused entirely on cards business — other issuers like HDFC Bank and ICICI Bank have their cards operations as part of the banking business. The exclusive focus on the unsecured cards business, however, increases the risk for SBI Cards from defaults by individuals.

Typically, grey market trades happen just ahead of the launch of a share sale. The IPO is aimed at raising Rs 9,500 crore and traders expect the price band around Rs 600-700 apiece. Those who bet on the premium in the grey market expect the price to gain Rs 200-250 once the shares start trading in the secondary market. “SBI Cards would be a logical bet as there are no competitors per se. This in turn is driving the premium up,” said a trader. There is high demand from wealthy individuals, local brokerages in these trades.

“There are some trades happening at a premium of Rs 230 and Rs 240, which are popular levels for SBI Cards,” the person said.

But dealers said the scrip was over-priced and was trading 12 times its price-to-book.

SBI’s plastic cards arm is estimated to have a base of 9.5 million, making it the second largest card issuer after HDFC Bank, as per an ET report in November. India’s credit card spending grew at an annualised rate of 35.6 per cent in the last three years, while credit card outstanding rose 25.6 per cent, data from the RBI show.

SBI Cards commands a relatively strong return on assets of 5.5 per cent, driven by better fees and low credit costs. The industry average for the cards business stands at 3.5 per cent. SBI Cards has not seen its return on equity (RoE) dip below 25 per cent in the past 6-7 years and has averaged around 30 per cent RoE during that time.

As per a report published by brokerage Emkay Global, India’s credit card market has more than doubled over the past four years in terms of number of cards to 53 million, but remains significantly underpenetrated at four cards per 100 people. The statistics in other developing or developed economies is 30.

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