SBI Cards IPO

1. Story of SBI Card IPO - Someone became super-rich, others not !!

Who is the SBI card:-
It is 74% SBI (Bank of India) and 26% Carlyle group.

We all know SBI. 

But, who is Carlyle group? 
It is a private equity fund which bought 26% share of SBI card from a GE group company at 2000 Cr. Rupee.

After IPO, who will be SBI card:-
It will be 70% SBI. - (It is diluting its 5.4% shares.) 
It will be 16%, Carlyle group.  - (It is diluting its 38.14% shares.)
And 14% new shareholders.

At the issue price of 750-755, what will be the company worth?
Ans:- 71,000 Cr rs. 

So, for a min, let's assume if Carlyle group is also diluting the same percentage of shares as of SBI, how much will be the worth of Carlyle group shares?
Ans:- Approx 17,500 Cr INR.

WOW for Carlyle group - Isn't it?
In 3 years, 2,000 Crore has become 17,000 Crore INR for them. Approx 8.5 time return.

Yes, at the current valuation of the SBI Card, Carlyle group is making eight times return in the last three years. 

In all the noise of this IPO, did you know about this part of the game?

Well, I have no issues with someone getting super-rich. It is capitalism. 

But, what about the other investors of SBI cards.

Well, SBI is also one of the investors. And many other retail investors who have their investments in SBI. 

They have made 5% return in 5 years. Yes, SBI share price has gone to 320 Rs from 305 rs. Only 20 rs. 5% return in 5 yrs. 

So, the question here is:-
One investor is getting 850% return, and other sets of investors are getting a 5% return post this successful IPO launch. 

Well, I have an issue now. 

It is not the right side of capitalism or valuation. Amazing performance of SBI card should have also reflected in the share price of SBI bank. But, it hasn't. (Below image for SBI share price taken from screener website)

2.Now, let's understand, IPO and OFFER FOR SALE

IPO - Money raised through IPO, goes to the company, on the balance sheet.

Offer for Sale - Money raised via Offer For Sale goes to promoters/early investor bank account. 

So, what is happening here with SBI card IPO? 

Well, in this much-hyped IPO of 9000 Cr. has below bifurcation:- 

So, called total IPO size:- 9000 Cr.

1) Fresh Issuance (IPO) - 500 Cr - So, out of 9000 Cr rupees raise only 500 Cr will go to SBI card company. 

2) Rest of the amount - Approx 8500 Cr - via Offer for sale - which means around 95% of the money raised via this IPO process will be taken home by SBI and Carlyle group. 

I must mention here that the Carlyle group will be taking home approx 7000 Cr. INR home. 

Yes, with 2000 Cr investment, they will make 7000 Cr now and still hold 16% share of this currently valued 70,000 Cr company. That sums another approx 10,000 Cr worth of shares. 

Again, no offence with Carlyle group handsome return. The issue is only one why didn't retail investors of SBI made even one-tenth of what Carlyle group !! 

And, this story gives me the intent and need of this IPO. 

Right, the need of the IPO is not to raise money for business expansion but to give profit exit to the Carlyle group. And, I wonder, SBI is working for us or working for foreign registered Private investors. 

So, knowing their intent behind this IPO, I would stay away from investing in this company at 750-755 Rs. I would have surely thought about investing in it provided this 9000 Cr would have been used for strengthening the company's business. 

 

3.What about the valuation?

Yes, and let's start with relative valuation. Let's compare it with other companies in the same business.

Well, we have no listed company in the same segment. Yes, SBI cards only business is CREDIT cards. It earns revenue only through credit cards business. And, we have no other company in this segment to compare. 

But, yes, we have one international company to compare. And, most of you must have heard their name once. 

AMEX

American express. 

Yes, at 750 rs offering price of this IPO, SBI card is demanding 46 times  Price of their latest earning. Yes, PE ratio will be 46 for SBI card.

AMEX PE is 17. (half of the business comes from Credit cards segment only)

Which means SBI cards at 750 Rs is 2.7 times expensive than AMEX.

But, can we compare AMEX and SBI cards. 

Well, not really. AMEX is much better a company than SBI cards. Global, robust, historical performance, returns for shareholders, risk coverage, management - I would rate them better than SBI cards in almost all front. 

And, you can't tell me the same old rhetorical logic of India's population. AMEX operate in India as well. If credit card business grows multiple folds, AMEX and other players will get benefitted too. 

I don't see a point of buying an inferior company shares expensive.

Well, on relative valuation front, I would again not apply in SBI Card IPO.

 

4) For what reasons, I may apply for this IPO.

Listing gains.

Yes, the only reason I can apply for this IPO is because of the buzz, which will result in listing gains. It is a  common phenomenon that most of the companies bring their IPO in the bull market. 

In the bull market, retail investors tend to subscribe to every IPO that comes across. It results in oversubscription. 

For a few days, the stock price goes up also. But soon, the effect of bull market fizzles out. And, I have seen this pattern in 8 out of 10 IPOs in India. 

During the CSB IPO, every media channel gave it a buy call. And, I called it over-expensive in my LinkedIn post. (Click here to read Linkedin Post)

However, I was confident that the way media was managed, it is going for substantial listing gains, and I have a reputation risk here by evaluating this IPO and writing the truth about it. 

But, always remember reputation is like the shadow of the Tree; character is the real thing, the Tree! 

Truthfulness should be one integral part of our character. (CSB went up to INR 300 and many people who were not allocated the shares bought it at those levels, it is down to INR 170/- within two months)

SBI Card IPO has exactly copied the process. Only 5% of the total IPO money is going to the company's account, and the rest is on offer for sale.

And, I have a complain here with SEBI. They should not allow these companies to bring fresh issues and offer for sale at the same time.

It always keeps retail investors in the dark, as they don't tend to research deep. And it is natural. We can't blame retail investors knowledge.

SEBI must make laws and rules to protect retail investors. 

I did a survey yesterday through a LinkedIn post. 99% of the retails investors were not about this fact that 95% of the money is going to existing investors account and not on the company balance sheet.  (Click here to see the survey live)

So, the only reason anyone can apply for this IPO is to gain from the buzz which media has created for this stock. Someone, who believe in timing the market can take the pain to earn by applying for this IPO.

 

Continues.................
One more topic to cover on this.

5) Financials of the SBI card