Low consumption deepens SBI Cards' woes as Covid-19 lockdown gets extended
Termed as the mother of all IPOs, expectations were high from
SBI Cards. Being the first IPO of a
credit card company in India, investors were willing to overlook concerns, including its pricey valuation of 46x its FY20 estimated earnings.
However, between the time of floating the issue and listing, market conditions started worsening, thus leading to the stock closing at Rs 683 on the BSE, below its IPO price of Rs 755, on listing day. The situation has worsened since then.
The 30-day lock-in for anchor investors ended on Monday.
Experts said that the pulling out of nearly Rs 500 crore of shares (1 per cent of m-cap) by anchor investors led to the 15 per cent fall.
In contrast, going by the shareholding for the March quarter,
foreign institutional investors (FIIs) and
domestic institutional investors (DIIs) have been lapping up shares following the IPO. FIIs had increased their stake from 3.53 per cent (at the time of listing) to 4.03 per cent (at the end of March), and DIIs to 3.04 per cent from 1.6 per cent.
Investors’ dilemma
So, should retail investors follow their institutional peers?
Not unless they are prepared to see near-term (3-4 quarters including Q4FY20) financials coming under severe pressure. As consumption across categories may take a backseat in the near term — even if the lockdown were to be lifted on May 3 — some critical revenue streams and asset quality may be impaired.
In the long term, however, the stock will bounce back when the overall market and consumer sentiment improve, says Nilesh Shah, MD of Envision Capital. This is because the business fundamentals of SBI Cards remain intact, he said.
At 14 per cent net interest margin and 29 per cent return on equity based on 9MFY20 results, the numbers look attractive. SBI Cards is the market leader on parameters such as open market sourcing and co-branding cards, despite being second to HDFC Bank in terms of issuances.
Being a subsidiary of SBI, it has access to the latter’s 400 million-plus customer base. The decision to refrain from issuing free cards also helps maintain profitability, said analysts at PhillipCapital. A possible regulatory intervention on fee and pricing is an overhang on the stock.
In addition, Shah says that if SBI Cards decided to tighten its underwriting norms, it could alter its growth trajectory. “Considering how core banking stocks are available at a discount, SBI Cards seems to be trading at a premium,” Shah adds. At Rs 505.6, it is trading at 35x its FY20 estimated earnings.
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