SBI Cards and Payments IPO review


CY 2020 started with the main-board IPO of ITI Ltd. that failed to garner the desired amount despite extension and change in the price band. However, SBI Card IPO created unprecedented hype ever since it filed DRHP with regulator and surprised one and all with hectic grey market premium activities even before the announcement of the price band, lot size etc. Anyway, since this IPO is currently the “Talk of the Town” and is attracting fancy across the board, it is expected to make new records of oversubscription opines primary market experts. But they cautioned that “Please do not be carried away with grey market activities, investors must study the fundamentals before investing.”

ABOUT COMPANY

SBI Cards and Payment Services Ltd. (SBI Card) a subsidiary of SBI is one of the leading credit card issuers in India, which is one of the fastest-growing economies in the world with an expanding and under-penetrated credit card market. As per the survey, India has just 3% penetration (lowest in the world) in the credit card segment leaving ample scope for advancement.

SBI Card is the second-largest credit card issuer in India, with a 17.6% and 18.1% market share of the Indian credit card market in terms of the number of credit cards outstanding as of March 31, 2019, and November 30, 2019, respectively, and a 17.1% and 17.9% market share of the Indian credit card market in terms of total credit card spends in fiscal 2019 and in the eight months ended November 30, 2019, respectively, according to the RBI. It offers an extensive credit card portfolio to individual cardholders and corporate clients which include lifestyle, rewards, travel and fuel, shopping, banking partnership cards and corporate cards covering all major cardholder segments in terms of income profiles and lifestyles.

It started operations in 1998, and since then SBI’s parentage and highly trusted brand have allowed it to quickly establish a reputation of trust, reliability and transparency with cardholders. According to the RBI, SBI Card has grown its business faster than the Indian credit card market over the past three years both in terms of numbers of credit cards outstanding and amounts of credit card spends. From March 31, 2017, to March 31, 2019, its total credit card spends grew at a 54.2% CAGR (as compared to a 35.6% CAGR for the overall credit card industry, according to the RBI) and the number of its credit cards outstanding grew at a 34.5% CAGR (as compared to a 25.6% CAGR for the overall credit card industry, according to the RBI).

It has a broad credit card portfolio that includes SBI Card-branded credit cards as well as co-branded credit cards that bear both the SBI Card brand and co-brand partners’ brands. It offers four primary SBI branded credit cards: SimplySave, SimplyClick, Prime and Elite, each catering to a varying set of cardholder needs. It is also the largest co-brand credit card issuer in India according to the CRISIL Report and has partnerships with several major players in the travel, fuel, fashion, healthcare and mobility industries, including Air India, Apollo Hospitals, BPCL, Etihad Guest, Fbb, IRCTC, OLA Money and Yatra, among others. Its credit cards portfolio is tailored to meet a diverse range of cardholder needs across the entire spectrum of its cardholders’ income profiles and lifestyles, from the “premium” cardholder category to the “affluent”, “mass affluent”, “mass” and “new to credit” categories. The company issues credit cards in partnership with the Visa, MasterCard and RuPay payment networks, and is continuously looking to expand its payment network partnerships to broaden the reach and functionality of credit card offerings.

It has a diversified customer acquisition network that enables it to engage prospective customers across multiple channels. It deploys a sales force of 32677 outsourced sales personnel as of December 31, 2019, operating out of 145 Indian cities and which engages prospective customers through multiple channels, including physical points of sale in bank branches, retail stores, malls, fuel stations, railway stations, airports, corporate parks and offices, as well as through telesales, online channels, email, SMS marketing and mobile applications. SBI Card is the leading player in open market customer acquisition in India according to the CRISIL Report. It has a presence in 3190 open market points of sale across India as of December 31, 2019. Also, its partnership with SBI provides with access to SBI’s extensive network of 21961 branches across India, which enables it to market credit cards to SBI’s vast customer base of 445.5 million customers as of December 31, 2019.

Its technology systems also leverage artificial intelligence and process automation technologies to automate routine activities, such as customer service and credit analysis, which have enhanced its operating efficiencies. It has a diversified revenue model whereby it generates both non-interest income (primarily comprised of fee-based income such as interchange fees, late fees and annual fees, among others) as well as interest income on its credit card receivables. The share of its revenue from operations that derive from non-interest income has steadily increased over the past three fiscal years, from 43.6% in fiscal 2017 to 48.9% in fiscal 2019.

ISSUE DETAILS / CAPITAL HISTORY

Currently, SBI group is holding 74% and CA Rover Holdings (26%) equity of SBI Card. To part finance augmenting its capital base to meet future capital requirements, SBI Card is coming out with a maiden combo IPO of fresh equity issue (FV ₹10) as well as offer for sale. SBI Card is issuing fresh equity share shares worth ₹500 cr. (approx 6,622,516 shares) and an offer for sale of 130,526,798 shares. It has fixed the price band of ₹750 – ₹755 and thus mulls mobilizing ₹10,286.20 cr. to ₹10,354.77 cr. (based on lower and upper price bands). The offer includes a reservation of up to 1,864,669 shares for subscription by eligible employees and a reservation of 13052680 shares for subscription by SBI Shareholders (who are holding SBI shares in their demat account on 18.02.2020). The company is offering a discount of ₹75 per share to eligible employees. There is no discount for any other category.

The issue opens for subscription on 02.03.2020 and will close on 04.03.2020 for QIB Bidders and 05.03.2020 for all other categories of bidders. Minimum application is to be made for 19 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. Issue constitutes approx. 14.61% of the post issue paid-up capital of the company.

Having issued initial equity at par, SBI Card raised further equity (52,222,222 shares) by way of the rights issue at a fixed price of ₹90 per share in July 2018 and then issued further equity (95,112,054 shares) in July 2019 on an amalgamation of SBI Business Process.

The average cost of acquisition of Equity Shares for the selling shareholders is in the range of ₹28.69 to ₹81.19 per Equity Share and the offer price at the upper end of the Price Band is ₹755 per equity share. The company will spend less than 1.5% for the overall IPO process.

Post issue, SBI Card’s current paid-up equity capital of Rs.932.33 cr. will stand enhanced to ₹938.95 cr. With this issue, SBI Card is looking for a market cap of approx. ₹70890 cr.

BRLM’s to this offer are Kotak Mahindra Capital Company Ltd., Axis Capital Ltd., DSP Merrill Lynch Ltd., HSBC Securities and Capital Markets (India) Pvt. Ltd., Nomura Financial Advisory and Securities (India) Pvt. Ltd. and SBI Capital Markets Ltd. Link Intime India Pvt. Ltd. is the registrar to the issue.

FINANCIAL PERFORMANCE

For the last three fiscals, SBI Card has reported total revenue/net profits of ₹3471.04 cr. / ₹372.86 cr. (FY17), ₹5370.19 cr. / ₹601.14 cr. (FY18) and ₹7286.84 cr. / ₹862.72 cr. (FY19). For nine months period ended on 31.12.19, it has earned a net profit of ₹1161.21 cr. on revenue of ₹7240.16 against a net profit of ₹614.52 cr. on revenue of ₹5278.68 cr. for the corresponding previous period.

For the last three fiscals, SBI Card has posted an average EPS of ₹7.97 and an average RoNW of 24.67%. The issue is priced at a P/BV of 14.60 based on its NAV of ₹51.73 as on 31.12.19. If we annualize latest earnings and attribute it on fully diluted equity post IPO then asking price is at a P/E of around 45.8 making it fully priced issue.

For FY17 to FY19 SBI Card has reported CAGR of 44.6% in revenues, 37.6% in interest income, 53.2% in non-interest income and 52.1% in profit after tax (PAT). With continuing leveraging technology SBI Card all set for expanding customer acquisition capabilities, stimulate growth in credit card transaction volumes and enhance cardholders experience and broadening its portfolio with more tie-ups.

COMPARISION WITH LISTED PEERS

As per offer documents, SBI Card has no listed peers to compare with.

BRLM’S TRACK RECORDS

The six merchant bankers associated with the offer have handled 46 issues in the past three financial years, out of which 17 issues closed below the issue price on listing date.

MAJOR CONCERNS

Any unfavorable change in Government/RBI policy for MDR (Merchant Discount Rate) and unsecured financing pattern are major concerns. Its dependence on SBI and the rising market competition may pose threats.

Conclusion / Investment Strategy

SBI Card enjoys fancy due to parent SBI’s credentials. Being a second-largest plastic money player in a growing economy like India and the first mover in the segment to get listed, it may continue to generate high interest going forward. Although the issue appears fully priced, investors may consider investment for short to long term rewards.

The original review is written by Dilip Davda, appears on chittorgarh.com and is available here.

 

stockarchitect March 2, 2020

Chittorgarh.com / Dilip Davda / IPO / IPO review / Review / SBI Cards /

Reblog: Review IndoStar Capital Finance Limited IPO


After a lull in the month of April 2018, long wait for main board IPO for financial year 18-19 is over with a non-banking finance company breaking the ice with its float of around Rs. 1850 crore. Details of the first main board IPO of this fiscal is given hereunder:

Indostar Capital Finance Ltd. (ICFL) is a leading non-banking finance company (“NBFC”) registered with the Reserve Bank of India as a systemically important non-deposit taking company. It is a professionally managed and institutionally owned organization which is primarily engaged in providing bespoke Indian Rupee denominated structured term financing solutions to corporate and loans to small and medium enterprise (“SME”) borrowers in India. ICFL recently expanded its portfolio to offer vehicle finance and housing finance products. Although, the company operated in a challenging credit environment in the initial years of our business operations business has experienced growth since the commencement of operations in 2011. Between fiscal 2013 and 2017, its total credit exposure, total revenue and net profits grew at a CAGR of 30.0%, 31.4% and 23.7% respectively. Its corporate lending business which was at 99.8% in FY 2015 declined to 76.8% for the period ended 31.12.17 and for the said periods, its SME lending business grew from 0.2% to 22.7%. Vehicle financing operations started from November 2017 and housing finance operations started from March 2018.

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stockarchitect May 9, 2018

Chittorgarh.com / Dilip Davda / IndoStar Capital / IPO / Review /

Reblog: Future Supply Chain IPO review


Future Supply Chain Solutions Ltd. (FSC) is one of India’s largest organized third-party logistics service operators. It offers automated and IT-enabled warehousing, distribution and other logistics solutions to a wide range of customers. Company’s service offerings, warehousing infrastructure, pan-India distribution network, “hub-and-spoke” transportation model and automated technology systems support its competitive market position. FSC’s customers operate in various sectors across India, including retail, fashion and apparel, automotive and engineering, food and beverage, fast moving consumer goods (“FMCG”), e-commerce, healthcare, electronics and technology, home and furniture and ATMs. According to management, its business model enables it to act as a service provider that can comprehensively cover customers’ supply chain needs. It currently operates with 14 hubs, 106 branches and dedicated containerized fleet of 526 vehicles. Its Mihan-Nagpur distribution center is the most modern and highly automated one.

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stockarchitect December 6, 2017

Chittorgarh.com / Dilip Davda / Future Supply Chain Solutions / IPO / Review /

Reblog: Shalby Ltd IPO review


Shalby Ltd. (Shalby) is one of the leading multi-specialty chains of hospitals in India. Its hospitals are tertiary care hospitals, few of which also offer quaternary healthcare services to patients in various areas of specialization such as orthopedics, complex joint replacements, cardiology, neurology, oncology, and renal transplantations. As on the date of RHP, Shalby provided inpatient and outpatient healthcare services through 11 operational hospitals with an aggregate bed capacity of 2,012 beds. As on June 30, 2017, it had nine operational hospitals with an aggregate operational bed count of 841 beds. Shalby that has earned name and fame for joint replacement had a 15% market share of all joint replacement surgeries conducted by private corporate hospitals in India in 2016. As on the same date, it also provided outpatient services through 47 Outpatient Clinics and has ten shared surgery centres within third party hospitals, which are called “Shalby Arthroplasty Centre of Excellence” (“SACE”), where Shalby offers orthopedic healthcare services including surgeries. Since March 2007, it has conducted an aggregate of 92100 surgeries, and provided healthcare services to an aggregate of 1025533 patients, consisting 133652 inpatients and 891881 outpatients. Indian healthcare industry that was around Rs. 9.2 trillion in 2016 is expected to grow at a CAGR of around 15-16% to reach Rs.17.2 trillion by 2020.

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stockarchitect December 5, 2017

Chittorgarh.com / Dilip Davda / Hospital / IPO / Review / Shalby Ltd. /

Reblog: HDFC Standard Life IPO Review


IPO Snapshot:

HDFC Standard Life Insurance is entering the primary market on Tuesday 7thNovember 2017, with an offer for sale (OFS) of up to 29.98 crore equity shares of Rs. 10 each, by both the promoters HDFC (64% of OFS) and Standard Life (36% of OFS), in the price band of Rs. 275 to Rs. 290 per share. Representing 14.92% of the post issue paid-up capital, OFS will raise Rs. 8,695 crore at the upper price band and will close on Thursday 9th November. Listing is likely on 17th November.

Company Overview:

HDFC Standard Life, HDFC’s 61.21% subsidiary, with 34.75% owned by foreign partner Standard Life, is India’s 3rd largest private sector life insurer, after ICICI Pru and SBI Life, based on market share of 16.5% among private insurers, on FY17 total premium.

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stockarchitect November 7, 2017

Geetanjali Kedia / HDFC / HDFC Standard Life Insurance / IPO / Review / sptulsian.com /

Reblog: Khadim India IPO review


IPO Snapshot:

Khadim India is entering the primary market on Thursday 2nd November 2017 to raise Rs. 50 crore via fresh issue of equity shares and an offer for sale (OFS) of up to 66 lakh equity shares of Rs. 10 each by promoters (11% of OFS) and Fairwinds PE (89% of OFS), both in the price band of Rs.745 to Rs. 750 per share. Representing 40.32% of the post issue paid-up share capital at the upper end, total issue size is Rs. 543 crore. The issue will close on Monday 6th November and listing is expected on 14thNovember.

Company Overview:

Khadim India is India’s second largest footwear retailer, and the largest in East India, with 853 Khadim’s branded retail outlets (80% of which are franchised out) and 377 distributors, as of 30-6-17, with retail accounting for 73% of Rs. 621 crore FY17 topline and distributors accounting for 22%. The company has a dual strategy to grow both retail outlets and deepen distribution pipeline. The company offers a bouquet of 9 brands across different footwear categories, besides parent brand Khadim. Positioned as a value retailer focusing on mass and mass premium category, 55% of its stores are located in tier 3 cities.

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stockarchitect November 2, 2017

Geetanjali Kedia / IPO / Khadim / Review / sptulsian.com /

Reblog: New India Assurance IPO Review


IPO Snapshot:

The New India Assurance Company is entering the primary market on Wednesday 1st November 2017 with an IPO of up to 12 crore equity shares of Rs. 5 each, comprising fresh issue of upto 2.40 crore equity shares and an offer for sale (OFS) of 9.60 crore equity shares by promoter Indian Government, both in the price band of Rs.770 to Rs. 800 per share, with Rs. 30 per share discount for retail investors. Representing 14.56% of the post issue paid-up share capital, issue will raise Rs. 9,474 crore, at the upper end, of which, Rs. 1,895 crore will flow into the company via fresh issue and balance Rs. 7,579 crore will meet FY18 divestment target of Rs. 72,500 crore. Issue will close on Friday 3rd November and listing is expected on 13thNovember.

Company Overview:

New India Assurance, 99.99% subsidiary of Government of India, is the country’s largest general insurance company, with 15% market share (down from FY16’s 15.7%) in gross direct premium, enjoying leadership in all segments, such as motor, health, fire, marine, except crop. In FY17, motor, health, fire, marine, crop segments accounted for 39%, 26%, 15%, 3% and 5% of company’s gross written premium, respectively, which is more-or-less in line with the industry structure, except for crop insurance where all private sector insurers have been more aggressive. Company has a robust pan India multi-channel distribution network, comprising 2,452 offices, 68,389 agents, 16 corporate agents, 25 bancassurance partners (including Bank of India and Canara Bank), with individual agents, direct sales and brokers accounting for 42%, 31% and 26% of business respectively.

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stockarchitect November 1, 2017

IPO / New India Assurance / Review / sptulsian.com /

Reblog: Mahindra Logistics IPO review


Mahindra Logistics Ltd. (MLL) – a Mahindra group company is one of India’s largest 3PL solutions providers in the Indian logistics industry which was estimated at Rs. 6.40 trillion in fiscal 2017 according to CRISIL report. MLL’s competitive advantage is its “asset-light” business model pursuant to which assets necessary for operations such as vehicles and warehouses are owned or provided by a large network of business partners. Technology enabled, “asset-light” business model allows for scalability of services as well as the flexibility to develop and offer customized logistics solutions across a diverse set of industries. The company operates in two distinct business segments, supply chain management (“SCM”) and corporate people transport solutions (“PTS”).

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stockarchitect October 31, 2017

Chittorgarh.com / Dilip Davda / IPO / Logistics / Mahindra / Review /

Reblog: Reliance Nippon Life IPO review


Reliance Nippon Life Asset Management Ltd. (RNL) (erstwhile known as Reliance Capital Asset Management Ltd.) is one of the largest asset management companies in India, managing total AUM of Rs. 3,625.50 billion as of June 30, 2017. RNL is involved in managing (i) mutual funds (including ETFs); (ii) managed accounts, including portfolio management services, alternative investment funds (“AIFs”) and pension funds; and (iii) offshore funds and advisory mandates. It is ranked the third largest asset management company, in terms of mutual fund quarterly average AUM (“QAAUM”) with a market share of 11.4%, as of June 30, 2017, according to ICRA. RNL started mutual fund operations in 1995 as the asset manager for Reliance Mutual Fund, managed QAAUM of Rs. 2,229.64 billion and 7.01 million investor folios, as of June 30, 2017. It managed 55 open-ended mutual fund schemes including 16 ETFs and 174 closed-ended schemes for Reliance Mutual Fund as of June 30, 2017. RNL has a pan-India network of 171 branches and approximately 58,000 distributors including banks, financial institutions, national distributors and independent financial advisors (“IFAs”), as of June 30, 2017.

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stockarchitect October 25, 2017

Chittorgarh.com / Dilip Davda / IPO / Reliance / Reliance Capital / Reliance Nippon / Review /

Reblog: IPO Review – Indian Energy Exchange Ltd.


Indian Energy Exchange Ltd. (IEX) is the largest exchange for the trading of a range of electricity products in India, in terms of traded contract volumes in the financial year 2017 according to the Central Electricity Regulatory Commission (the “CERC”). Electricity products traded over its electronic trading platform comprise (i) electricity contracts in blocks of 15 minutes in the day-ahead-market (the “DAM”), (ii) electricity contracts for fixed terms in the future, such as intra-day contracts, day ahead contingency contracts and contracts up to 11 days ahead, known as the term-ahead-market (the “TAM”) and (iii) renewable energy certificates (“RECs”). IEX has commenced the trading of energy saving certificates (“ESCerts”) on Exchange on September 26, 2017. It is one of two exchanges in India that offer an electronic platform for the trading of electricity products and have a substantial majority market share among the power exchanges in India. The DAM constitutes the substantial majority of the energy contracts that are traded on IEX. In the financial years 2016 and 2017, it commanded a 99.6% and 99.4% market share, respectively, of electricity contracts in the DAM, in terms of volume, according to the CERC. According to the CERC, in the financial years 2016 and 2017, 93.7% and 94.8% of the traded contract volumes of electricity contracts in the DAM, TAM and RECs combined, were conducted over it.

The Indian power market, in terms of electricity generated, consisted of 89.7% of long-term and medium terms electricity contracts (contracts for periods of one year or over) and 10.3% of short-term electricity market (contracts for periods of under one year) for the financial year 2017, according to the CERC. The short-term electricity market includes contracts through licensed traders, direct bilateral contracts, deviation settlement mechanism (“DSM”) and contracts traded over power exchanges. The share of electricity contracts traded over power exchanges has grown from 23.8% to 34.5% of the short-term market between the financial year 2013 and the financial year 2017, according to the CERC. Further, according to CRIS, the short-term electricity market in India is expected to grow to 21.1% of electricity generated in India by the financial year 2022, of which 43.0% is expected to be traded over power exchanges.

Trading in the DAM and TAM product categories through IEX provides participants with a means to meet their power requirements and manage, among other things, availability and price of electricity. It primarily brings together sellers of power, such as independent power producers, captive power plants, distribution companies and Government owned power generation companies, and buyers of power, such as distribution companies and industrial, commercial and institutional power consumers, and provides them with a transparent, neutral and automated platform for trading of electricity. Trading on IEX is done by its members on their own behalf and on behalf of their clients, who are together known as participants on Exchange. Trades with respect to electricity contracts traded in the DAM and TAM are physically settled, meaning that settlement is made through the physical delivery of electricity itself. IEX does not own or trade electricity products for on its own account.

As of August 31, 2017, IEX had over 5,900 participants registered on its Exchange of which over 3,200 participants were active. Over 4,300 registered participants were eligible to trade electricity contracts and over 4,000 registered participants were eligible to trade RECs, as of August 31, 2017. Its participants registered to trade electricity contracts are located across 29 states and five union territories in India and include 50 distribution companies, over 400 electricity generators, and over 3,900 open access consumers. As on the same date, IEX included over 1,000 renewable energy generators and over 2,900 industry and corporate customers. In the financial year 2017, participants traded and cleared 4.62 million RECs on Exchange. Only 3.6% of power generation capacity is traded on this exchange against 30 to 70% trades on global power exchanges.

For providing exit route and listing gains, IEX is coming out with a maiden IPO by way of offer for sale of 6065009 equity shares of Rs. 10 each via book building route with a price band of Rs. 1645-1650 to mobilize Rs. 997.69 to Rs. 1000.73 crore (based on lower and upper price bands). The issue opens for subscription on 09.10.17 and will close on 11.10.17.Minimum application is to be made for 9 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. BRLMs to this offer are Axis Capital Ltd., Kotak Mahindra Capital Co. Ltd., and IIFL Holdings Ltd. Karvy Computershare Pvt. Ltd. is the registrar to the issue. Issue constitutes 20% of the post issue paid-up capital of the company. This being a secondary offer, the company’s paid-up capital remains same at Rs. 30.33 crore post IPO. Its entire equity is issued at par so far. The average cost of selling shareholders ranges from Rs. 10 to Rs. 709.23.

On the performance front, IEX has posted total revenue/net profits of Rs. 173.99 cr. / Rs. 91.95 cr. (FY14), Rs. 176.38 cr. / Rs. 90.02 cr. (FY15), Rs. 200.14 cr. / Rs. 100.34 cr. (FY16) and Rs. 237.42 cr. / Rs. 113.57 cr. (FY17). For Q1 of the current fiscal, it has reported a net profit of Rs. 30.63 cr. on total revenue of Rs. 61.66 cr. It has posted an average EPS of Rs.34.84 and average RoNW of 39.25 for last three fiscals. The issue is priced at a P/BV of 16 plus. If we annualize latest earnings and attribute it on post issue equity then asking price is at a P/E of 40 plus. It has no listed peers to compare with. Though pricing of the IPO raises concern, its track record and bright prospects leave some room for new investors. IEX’s revenue posted CAGR of 14.5% for last five fiscals. It’s PAT margins are near 49% for all these years.

On BRLM’s front, three merchant bankers associated with the offer have handled 44 public issues in the past three years out of which 12 issues closed below the issue price as on listing date.

Conclusion: Higher spending for power infra augurs well for this company. IEX will enjoy the first mover advantage and generate more fancy post listings. Investors may consider an investment for short to long term. (Subscribe).

The original review appeared on Chittorgarh.com and is penned by Dilip Davda. It is available here.

stockarchitect October 9, 2017

Chittorgarh.com / Dilip Davda / IEX / Indian Energy Exchange / IPO / Review /

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