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SBICARDS IPO: is it long term play or just for listing gain?



#SBICARDS #IPO has opened today and will close on March 4, 2020. Its an #book_building issue having a price band of 750-755.

A strong hype is created for this issue and reminding me of #RPOWER which was offered in 2008 and #investors never got its offer price back in secondary market after listing day.

Recently we had very successful IPO of #IRCTC at time of listing this #company was offered at 320 rupees which was 18.77 times of its annual earnings.

IRCTC is a company which operates in an #industry which have no competition and have sustainable competitive moats till date.

However, #SBI cards is having 18-20% market share in credit card industry and there are lots of other players offering same product. However, big market share for this company will play favorable role for this company but there will always be a threat from competition. This company is having very strong competitors like #ICICI and #HDFC.

SBI is showing annual earnings per share around 9.43 rupees for FY 2018-2019 and half year ended September 2019 #EPS is around 7.79 rupees. #Half year #revenue for period ended on September 2019 stood at 43639.35 million which is 62.34% of revenues for FY 2018-2019.
Half year EPS for period ended on September 2019 stood at 7.79 which is 82% of the Annual EPS for FY 2018-19.

As a conservative #investor we assume that if this company manages to grow its EPS by at least 60% Year on year basis then we expect EPS for the #FY 2019-2020 somewhere around 15 rupees. If we divide the lower band of issue price by its earning then we get P/E ratio of 50 which makes it very costly if compared with a company like IRCTC. Thus one can’t expect same type of performance from SBICARDS as witnessed by IRCTC.

If an IPO is offered at such a high valuation then should we apply for the IPO?

Yes!!! Definitely we can because valuation is a thing which is considered by only informed traders but supply and demand is another factor that determines the price for any instrument.  
Secondary market contains every type of market participant i.e. informed, uninformed, experienced and inexperienced thus because of strong hype people who don’t get shares during allotment will increase demand in secondary market and then this issue can be easily sold with a premium of 200-300 points at the time of listing. Thus one can apply for this issue for listing gains only.

If one is planning to invest for longer term then waiting for the adjustment of valuation can be a good idea after listing in secondary market.

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