#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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