SBI Cards lists on the worst possible day and its stock slips 13% on debut

• SBI Cards shares were issued at ₹755 each, but it listed at ₹661 at a discount of almost 13%.
• While the IPO elicited strong interest from institutional investors, it has fizzled out since its debut earlier today.
• Aggressive valuation and bad timing due to the ongoing coronavirus crisis could be the main reasons behind SBI Cards failing to dazzle.

On another day, in another month SBI Cards could have had the bumper listing it hoped for. Today (March 16), as the Sensex was in the midst of a bloodbath as it lost 2,700 points, there were but a few who rushed to buy it. The stock crashed by 13% on its listing debut.

This is a rude shock for those who has received the allotment and were waiting with bated breath for listing gains. In the last session, on Friday (March 13), after a trading halt for 45 minutes the stock exchanges gained over a 1,000 points giving some hope for the stock’s listing. But it was not to be, as the BSE Sensex opened 2,000 points down and kept falling.

Analysts expected at least 4-6% listing gains

The SBI Cards IPO was issued at ₹755, but it listed at ₹661. However, in better days, the grey market premium for SBI Cards hovered around ₹300-350 when the IPO was announced. As the date to list drew closer, stock markets caught the Corona fever, and the premiums had slowly climbed down to ₹50-100. On the actual date, the stock crashed by over ₹94.

During the time of the sale offer, analysts were expecting the stock to list in the range of ₹780-800 at expected returns of 4-6%.

Most analysts were upbeat about the IPO

However, analysts are of the opinion that the bad sentiment is not the only reason for the lacklustre listing. In fact, most of the premiums that the market was expecting were on the back of an upbeat market sentiment coming after the Budget and a slow uptick in economic growth.

In hindsight though, its pricing might have been quite aggressive. Based on SBI Cards’ net profit up to December 2019, the offer price demanded a price-earnings multiple of 46. This valuation could be optimistic when compared to companies like American Express which have a P/E ratio of around 17.

In spite of this, if the markets were in good shape, some of the expected premium could have been realised. When the IPO was announced, the markets were in a better mood as indicated by the interest it received. The IPO was oversubscribed 26.54 times, while institutional buyers oversubscribed by 57 times.

In March alone, the National Stock Exchange and Sensex crashed by over 18% due to massive sell-offs by foreign investors, wiping billions of investor wealth in two weeks.

The second biggest credit card issuer in India

Yet, SBI Cards as a company has a few bright spots. It is the second biggest credit card issuer in India, after HDFC Bank. It also doesn’t have the baggage of a regular bank as the credit card business is separate from SBI’s banking operations.

This means that SBI Cards is in an interesting position – it is a high-margin business. However, since it focuses only on unsecured credit cards, it has a higher risk of defaults when compared to its competitors HDFC Bank and ICICI Bank.

Yet the business has huge potential. The Indian market is still untapped when it comes to credit card usage - there are only 50 million credit card users in India, as opposed to over 840 million debit card users. There is a lot of potential for SBI Cards to seize the opportunity and corner a big chunk of the market. And maybe when the tide turns for the better, it might be worth what it was when it was not listed.

See also:

SBI Cards lists 13% below offer price as Sensex crashes by over 2,000 points

SBI Cards allotment: Check allotment status, listing date and more

IRCTC doubles investor wealth as its stock surges 128% on listing