Feature

Its IPO was overhyped but is it time to relook at SBI Cards?

Listing amidst a pandemic hurt its market cap, but analysts feel the SBI subsidiary could bounce back in FY22  

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One of the greatest television shows of our time, or at least the most watched, ended without a bang, or not even a spark according to millions of fans. After the hype — which preceded the release of every Game of Thrones series — for Season 8, many fans were left fuming, confused about where it went wrong and felt short-changed. It’s not a new tragedy: expecting the sky and landing hard on the ground. We have all experienced it, in investing, even more so. At least, SBI Cards investors had COVID-19 to blame.

Granted, its IPO wasn’t as big a disaster as the last season of GoT, at least not for private equity major Carlyle, which sold 10% of its 26% holding to institutional and retail investors for Rs.70 billion. SBI sold 4%. Carlyle cashed out big time as it had paid Rs.20 billion for its 26% stake in 2017 and during the IPO it was valued at Rs.170 billion. Even as the pandemic hit, the Rs.103 billion IPO in March was oversubscribed 26.5x. But call it bad timing with COVID-19 or busting the hype behind the first ‘pure credit cards play’, the stock listed at 13% discount to the issue price of Rs.755. As of July 15, it traded at Rs.690, having hit a low of Rs.495 in the last week of May. So, was the IPO overhyped and is it now trading at the right valuation or is there more upside once COVID-19 gets discounted?

Shweta Daptardar, research analyst, Prabhudas Lilladher, says the de-rating was imminent since it is a consumption play. “At times like these, consumption takes a big blow, but it will also be the first sector to bounce back. By FY22, earnings could go back to pre-Covid level, making SBI Cards a good stock to look at,” she explains.

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