SBI Cards IPO Or SBI Stock: Here's What Experts Favour

While there have been received record applications for the issue of SBI Cards and Payments Services, some retail portion is still unsubscribed after Day 1 of the issue. And so here's yet again a chance for you take a call on the public offer from India's leading credit card company. With a price band of Rs. 750-755, the company targets to raise an amount of Rs. 10,355 crore at the upper price band.

SBI Cards IPO Or SBI Stock: Here's What Experts Favour

SBI Cards IPO Or SBI Stock: Here's What Experts Favour

In the grey market even before the listing of the company on the bourses, the company commands a nearly 40% premium than the issue price i.e. it is attracting bids at a premium of 40% to the issue price. This outperformance is pointing to stellar listing gains with listing likely anticipated to be at levels of Rs. 1000 per share for SBI Cards.

Why SBI Card IPO and Not SBI Stock?

SBI stock which has a strong brand equity will not be able to deliver return at par with SBI Card in such a short span of time given the situation in the banking sector which is struggling to push credit.

Positives Seen for the SBI Card IPO

1. Low penetration of credit cards that is seen to pick up:

There is a low penetration of credit cards in the country in comparison to other economies and hence a likely push presents immense opportunities for the company like SBI Cards to grow significantly.

2. SBI Cards also leads its peers in number of credit cards outstanding as well as credit card spend:

The company though currently has a second largest market share in the credit card market space is fast gearing its efforts and has now surpassed all its peers in respect of number of credit cards outstanding as well as credit cards spends.

3. Earnings and valuations:

As per an ICICI direct report, the company in 2019 maintained net profit growth at 52.1% CAGR to Rs. 862.7 crore while also sustaining RoA of more than 4% and RoE of as much as 28%.

So, despite its rich valuations, the market share of 18% that it holds and the potential the company is seen to have in terms of growth makes the issue a value addition in your portfolio for the long term plus it is seen to surely offer stellar listing gains if the markets don't wobble much.

On the other hand for the SBI stock, while the rich valuations the SBI Card IPO commands will provide a positive effect on the stock of SBI, it is still not a good idea to bet on the stock that is trading in a range.

Further brokerage Macquarie citing reports said that SBI expects a valuation of Rs. 60000 crore in respect of its share in SBI Cards, which translates into Rs. 47 per share of SBI. And if this does happen then it would add 5% or Rs. 16 to the lender's target price of Rs. 320.

Last, the stock of SBI was trading at a price of Rs. 292.95, up Rs. 5.5 or 1.91% on March 3, 2020 at 9:51 am on the BSE.

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