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Why & How to Invest in SBI Credit Card IPO: Analyst Review & Details

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SBI Credit Card IPO Details (1)

The initial public offer (IPO) of India’s second largest credit card supplier SBI Cards and Payment Services will open on 2nd March 2020.

Yes, SBI Cards is going to rise about Rs 10,000 crore through this IPO by divesting its 4% stake in which SBI holds 74% stake while remaining 26% is owned by Carlyle Group that will sell 10% of its stake. Carlyle bought the stake in 2017 from GE.

The IPO which will open on 2nd March and close on 5th March priced in the band of Rs 750-755  comprises issue of fresh equity shares aggregating to Rs 500 crore and an offer for sale of nearly 13 crore shares. SBI and Carlyle Group will offload 3.73 crore shares and 9.32 crore shares respectively.

SBI Credit Cards Business Overview

Over the past few years the credit card business in India has increased tremendously with further scope and opportunities for suppliers.

As per the industry reports Credit Card spends in the country increased by 32% annually to Rs 6.1 trillion between FY15 and FY19 according to RBI and CRISIL following rising awareness of digital payments. The proportion of digital transactions increased to 62% in FY19 from 25%  in FY14.

And after HDFC Bank, SBI Cards is second-largest credit card issuer in India, with 18% market share in terms of the number of credit cards. And with 10 million cards in force and Rs 98,500 crore in card spends in the nine months to Dec 2019.

Also Read: How to Get Lifetime Free Credit Card?

It is operating through multiple channels and outlets. Nearly half the cards are issued using distribution channels of SBI and other banks while the remaining are through its customer acquisition network across 145 Indian cities.

SBI Credit Cards Financial Performance

In terms of financials, the company’s revenue from operations increased from ₹3,346 crore in fiscal 2017 to ₹6,999 crore in fiscal 2019 at a CAGR of 44.6%. The net profit in same period increased from ₹372 crore to ₹862 at a CAGR of 52.1%. Its return on equity (RoE) has remained above 28 % since FY17 giving an interesting returns.

How Do Credit Card Companies Make Money: Graphic

Apart from making the transaction charges from customers as well as merchants, credit card companies earn from following sources:

  • Interest on EMIs.
  • ATM Withdrawal Charges.
  • Cash on Call.
  • Late payment fees.
  • EMI on Cash on Call.
  • Fees convert to EMIs
  • Annual payment charges.
  • Transaction costs of any of the above charges.

Credit Card Penetrations in India vs Top Countries:

Credit card penetrations in India is very-very low just 3% compare developed nations like 320% in US,  214% in Japan, 94% in UK and far below than developing nations like China (42%) and Brazil (73%), implies too much scope for leading companies like SBI credit card to penetrate the untapped cities and acquire more customers.  

In past 4 year new credit card issuance has increased 10 times to 10% among customers below the age of 25 years young working population.

Annual Credit Card Spending in India

Presently HDFC bank is market leader with 1.25 Crore outstanding followed by SBI cards with 83 Lacs outstanding cards.

Credit Card Market Insights & Growth Scenario

  • HDFC is the market leader in No of card outstanding as well as average spends and outstanding while SBI cards is second largest player with market share of 18%.
  • 5 Year CAGR of no of cards is 23% while credit cards spend is 44%.
  • Asset quality is stable with gross NPA of 2.5% as on March 19.
  • SBI cards has co- branded cards with IRCTC, BPCL, OLA, Air India and Apollo Hospital
  • Receivables as on 30st Sep 2019 is 23038 Crore.
  • Average yield is about 21% and NIM is about 15%.
  • ROA is 4 to 4.8%.

Other Growth Factors:

  1. E-commerce industry in India is growing with a pace of 32% CAGR in past 5 year and is expected to grow at 25% CAGR over next 5 year.
  2. E-com industry size was INR 713 bn. In FY14 in FY19 it reaches to INR 3000+ bn and expected to cross INR 9000 bn by FY24. Since Most of the E com companies started accepting Cards payment in COD (cash on delivery) Cards spends likely to be increased.
  3. Median age of India is 28 years new credit card origination has shown highest growth in age group of 20-30 years.
  4. Organized retail penetration (including E-com) is just 11% and is expected to be about 15% by FY24.
  5. With deeper penetration of payment network of PayTM and PhonePay and credit card spends are increasing.
  6. Promoter advantage, about 70% of the customers sourcing done by SBI.

SBI Credit Card IPO Risk Factors

Although, owing to digitalization, competition from prepaid instruments such as e-wallets and UPI service is rising though they are mainly used for small transactions and do not offer credit period or benefit of reward points unlike credit cards.

And SBI Cards has adopted technologies to offer virtual cards on various mobile platforms thereby improving its appeal to tech savvy young generation. Economic slowdown affecting discretionary spend is another major risk. However, so far, the company has not experienced any slowdown in either card issuance or card spending.

Annual Card Spending in India Slowing Down

Yet only about 5% of Indians’ consumption per capita takes place through credit cards. After growing 12% annually over four years, average spending per card is stalling. While a slowdown is only to be expected given a sharp decline in economic momentum, the reason has more to do with the merchant than the spender.

Presently there is a cap on interchange fees on debit card any regulation on limiting interchange fees on credit card will adversely affect the performance of the company. Presently 21% of the total revenue comes from Interchange fees.

More than half of the income comes from interest on outstanding ( Revolving and EMI loan) any Regulatory change capping the interest rate will adversely affect the company. And slowdown in economy especially BPO and IT space leads to bulk of default. Earlier Barclays has shut down their credit card business due to economic slowdown, as most of credit card customers are working in private sectors with risk of job loss.

Analysts View on SBI Card IPO

As per the best stock broker in India and most of the securities firms remains positive on this IPO, citing many factors: Low free-float, first credit cards/payments company to get listed (only proxy to the fast-growing digital payments space), the company is the second largest credit card issuer with 18% market share in cards outstanding and spends and demonstrated faster business growth than industry.


Why and How to Invest in SBI Card IPO?

As, the financials and operating performance of the company is very encouraging and carrying many advantages like having second largest leadership in the credit card market, demonstrated track record of growth and profitability.

It has diversified customer acquisition capabilities, advanced risk management and data analytics capabilities with modern and scalable technology infrastructure to analyze the industry growth, scope and other scenario timely.

In my view you can subscribe to this IPO and gain 20-25% returns on the listing day and from long term investment point of view, you can also try in IPO or buy from the stock market after few days, when it will correct after listing gains.  

So, open online demat account now to invest in IPO. And I suggest you to bid at least 5 shares to get the allotment, as there is huge demand of this shares in the grey as well as primary market and the whole IPO will be oversubscribed many times.  

SBI Credit Card IPO Details:

Issue Open Date On 2nd March 2020
Issue Close Date On 5th March 2020
Issue SizeRs 10,290 Cr – 10,355 Cr
Price BandRs 750-755
Bid Lot Size19 Shares (there after in multiples)
Fresh Issue Rs 5000 million
Offer For Sale 130,526,798
Investors Portion QIB = 50% NII = 15% & Retail = 35% of the offer.
Employees Reservation Portion Up to 1,864,669 Equity Shares
Shareholders Reservation Portion Up to 13,052,680 Equity Shares.
Tentative Listing Date16 March 2020

Also Watch: SBI Cards IPO – Fundamental Analysis Video

Disclaimer: The views and investment tips expressed by investment expert on VSINGHBISEN.COM are his own and not that of the website or its management. vsinghbisen.com advises users to check with certified experts before taking any investment decisions.

Sources: SBI Credit Card DRHP, SEBI & Livemint

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How Shares Are Allotted in Oversubscribed IPO: Allocation Process

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How Shares Are Allotted in Oversubscribed IPO

Equity shares offered in Initial Public Offer (IPO) sometimes give lucrative returns in a short span of time. Yes, I’m talking about the shares you can get in oversubscribed IPOs that can give you the listing gains in secondary stock markets.    

Usually IPO are oversubscribed when the valuation of stock of the issuing company is cheaper than compare to its peer group companies. Or there is huge potential growth in the company in terms of high revenue and profit growth or various other favorable aspects making the shares of company attractive for the investors.    

What happens if IPO is oversubscribed?

If such growing companies’ shares are available at cheaper rates in primary markets (IPOs), every investor tries to put his money into the company with expectations to get good returns to compare to other shares, resulting in IPO is oversubscribed.    

Also Read: How to Check IPO Allotment Status on NSE BSE & ICICI DIRECT

While issuing the shares through IPO, the company allocates the proportion of equity shares to different types of investors like QIB, HNI, FIIs, DIIs and Retail Investors. And shares are allotted as per the subscription status into different categories of investors.

How Shares are allotted in Oversubscribed IPO?

As I’ve already told you in the previous section, IPO oversubscription allocation is done differently for the different categories of investors, let’s find out below.

IPO Oversubscription Allotment Process:

Qualified Institutional Buyer (QIB): If IPO is oversubscribed in QIB category, shares are allocated proportionally. For example, if the issue is subscribed by 10 times, then a QIB applicant who has applied for 20 lakh shares will be allotted 2 lakh shares only.

High Net worth Investors (HNI): HNI also receives allotment on a proportionate basis.

How IPO Shares are allocated to Retail Investors?

Though, as per the regularity authority SEBI’s guidelines, if an IPO is oversubscribed in the retail category, the shares are to be allotted in a manner that ensures that every retail bidder gets at least one minimum lot. The remaining shares, if any, are then allotted on pro rata basis. But companies follow the different criteria as disused below.  

If RII Applications are Less or Equal to Offered Lots: In this case, each applicant first gets at least minimum 1 lot. And, the rest available lots are allocated proportionally.

If RII Applications are Greater than Offered Lots: In this case, the allotment is done through a computerized draw to pick applicants for IPO allotment.

Also Read: What is Cutoff Price in IPO Application: Why Bid at Cutoff Price

Usually, IPOs offered by companies having good prospects and the potential to grow in the future are very often oversubscribed. The demand for shares of such companies is also high in the secondary markets. And getting shares allotted in an oversubscribed IPO is very much depends on your luck. If you get allotments you can enjoy the listing gains on the first day.

Also Read: How to Increase Chances of Getting Shares in IPO: Allotment Tips

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How to Increase Chances of Getting Shares in IPO: Allotment Tips

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tips for ipo allotment

An oversubscribed IPO means investors are willing to invest in the shares of a company having promising business growth prospects and can give lucrative returns in the stock market. And in such cases most IPO applicants including retail investors not get the allotment to become disappointed with the money returned into their account.

If you are one of them not get the shares in IPOs, you need to read this article to know how to ensure IPO allotment. Actually, when an IPO is oversubscribed multiple times, the chances are very low, but if you follow the rules discussed below you will maximize your chances of getting an allotment and enjoy the lucrative returns in the short-term.

Also Read: How Shares Are Allotted in Oversubscribed IPO: Allocation Process

5 Tricks & Tips for IPO Allotment

Tricks & Tips for IPO Allotment

#1 Fill the Correct Details in the Form

The first criterion of rejecting the IPO applications is incomplete or mismatch information provided in the form. So make sure while filling the IPO application form fill all the details like your name, PAN & Demat Number, etc. to become eligible. 

#2 Apply with Multiple Demat Accounts

You cannot apply multiple applications in an IPO using the same PAN number, if you do this, your first application could be also rejected. But you can open multiple demat accounts in the name of your family members and friends. 

Yes, applying through multiple accounts increases the change of allotment significantly in case of oversubscribed IPO. For example, if an IPO is oversubscribed 5 times, your chances of getting the allotment are 20%. But if you apply in the IPO using 5 family members’ names, there is a high chance that you will get an allotment in any of the applications.

#3 Always Bid at Cut-off Price

IPOs offered with the book building process have price bands and you have to bid for either bid for upper band limit or opt for cut-off price. If you bid at a lower bid price your application could be rejected or would be not eligible for the allotment.

Also Read: What is Cutoff Price in IPO Application: Why Bid at Cutoff Price

#4 Avoid Last Moment Subscription

Some investors wait for the subscription levels in HNI, QIB and retail categories before placing their bids. If the response is good then they are placing their bids on the last day. But if you are going to apply it on the last day but it might cause few issues like your bank account or net banking is not responding due to HNI and QIB high subscription.

#5 Buy Shares of Parent Company

Yes, this trick could be also workable if the IPO issuing company’s parent or holding company is already listed and giving a reservation to existing shareholders. If you have a few even single shares of a parenting company you would be eligible to apply for IPO and sometimes IPOs are offered at a discounted price to existing shareholders.

Reason for Not Getting IPO Allotment:

  1. Your application was not considered as valid i.e. invalid PAN No. or invalid Demat account number or multiple applications submitted from the same name.
  2. Your name was not selected in the lucky draw for allocation of shares (in case of huge over-subscription).

Let me tell you one thing, in oversubscribed IPOs, it is not confirmed that you will get the allotment of shares. As there are different types of allotment criteria, few of them follow the lucky draw and few companies go through the Pro-rata basis to make sure every investor can assuredly get the same amount share into their Demat account.   

In fact, luck draw is the most common reason and applied to 90% of the applicants for not getting shares. In all good IPO’s, due to oversubscription, the lucky draw process is followed and all investors don’t get allotment or get full allotment.

Also Read: How to Check IPO Allotment Status on NSE BSE & ICICI DIRECT

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How to Check IPO Allotment Status on NSE BSE & ICICI DIRECT?

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how to check ipo allotment

Applying in the Initial Public Offering (IPO) can be a profitable bet compare to buying the shares from the stock market. Yes, shares having potentials and offered at fairly priced at discounted rates surely get a positive response by investors and can give you the high returns on the listing with an option to monetize your shares on that day.

And if you regularly apply for the IPO or applied for an IPO at the cutoff price, you can check your share allotment status before the listing day. Actually, after IPO closure day when the company decides the allotment process, the money is refunded to the applicants. So you can check here the various ways to check IPO application status. 

Also Read: What is Cutoff Price in IPO Application: Why Bid at Cutoff Price

How to Check IPO Allotment Status Online?

How To Check IPO Allotment Status BSE:

Step1: First of all visit at BSE India.

Step2: Here you will see two types of issues, just select “Equity”.

Step3: Now select issue name- ‘Company Name’.

Note: Please note the company will only appear once the allotment is done.

Step4: Now you have to enter your ‘Application Number’ of IPO.

Step5: After that, you have to enter ‘PAN Card No’ and click Search.

How to Check IPO Allotment Status NSE:

Apart from BSE, you can also check IPO status on the national stock exchange (NSE). Just follow the stepwise guidance given below.  

Step1: First of all visit at NSE India.

Step2: Now login with your user name and password.

Step3: If you don’t have registered just create an account.

Step4: Now login with the credentials and select the company symbol.

Step5: Your PAN detail will be visible just enter the application number and get data.

How to Check IPO Allotment Status in ICICI DIRECT?

If you have a trading account with ICICI Direct you can check IPO application status there also only when you have applied for the IPO from there.

Step1: Login into your ICICI Direct Account.

Step2: Now Navigate to the IPO section.

Step3: Here in IPO Section select order book.

Step4: Now find just below “Status Application No.

Step5: Click here on ‘Executed” and a popup window opens.

Step6: When you click on executed you can see the allotted quantity.

Note: If you have not allotted any share you can see the refund amount.

How to Check IPO Status Online on other Platforms:

On Linkintime

Step: First of all visit the Linkintime website click here.

Step2: Now click on the drop-down and ‘Select Company’.

Step3: Just enter your PAN card detail correctly.

Step4: Now enter the captcha and click on submit.

Once you fill all the required details and submit you will your name along with the status of your IPO application showing the total securities you have applied and securities you have been allotted. If IPO is oversubscribed multiple times, there are lesser chances of allotment as in such situations it is not possible to get confirmed allotments.    

Also Read: How Shares Are Allotted in Oversubscribed IPO: Allocation Process

However, if you have bid at less than the higher band or not cutoff price and the company decided to issue IPO at a lower band then you would be not eligible to get the allotment. Because first of all such applications are rejected then allotment is done.

Also Read: How to Increase Chances of Getting Shares in IPO: Allotment Tips

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