1. *Story of SBI Card IPO -*
*Someone became super-rich, others not ... !!*
*Who is the SBI card :-*
It is *74% SBI* (State 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 *Rs.2000 Cr.*
After the *IPO,* who will be *SBI Card? :-*
It will be *70% SBI* - (It is diluting its shares.)
It will be *16%, Carlyle* group. - (It is diluting its shares.)
And *14% New Shareholders.*
At the issue price of *Rs.750-755,* what will be the company's worth ...?
Ans :- *Rs. 71,000 Cr.*
So, for a minute, 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 *Rs. 17,500 Cr.*
WOW a windfall gain for *Carlyle* group - *Isn't it?*
In just *3* years, *Rs. 2,000 Cr* has become *Rs.17,000 Cr* for them. Approx *8.5* times return ... !!!????
Yes, at the current valuation of the *SBI Card, Carlyle* group is making *8 times return* in just *3 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 *Rs. 320* from *Rs. 305." Only *Rs. 20,* i.e. just *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 reflected in the share price of SBI bank too.* 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 promoter's/early investor's bank account.
*So, what is happening here with SBI card IPO ...??*
Well, in this much-hyped *IPO* of *Rs. 9000 Cr.* has below bifurcation :-
So, called total *IPO* size :- *Rs. 9000 Cr.*
1) *Fresh Issuance (IPO) - 500 Cr.* - So, out of *Rs. 9000 Cr.* proposed raise, only *Rs.500 Cr .* will go to *SBI Card* company.
2) *Rest of the amount -* Approx *Rs. 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 *Rs. 7000 Cr.* home.
Yes, with *Rs. 2000 Cr.* investment, they will make *Rs. 7000 Cr.* now and still hold *16%* shares of this currently valued *Rs. 70,000 Cr.* company. That totals to another approx *Rs. 10,000 Cr.* worth of shares... !!????
Again, no offence with *Carlyle* group's handsome return. The issue here is only one, *"Why didn't retail investors of SBI made even one-tenth of what Carlyle group is making ... !!"????*
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 *exit with handsome profit to the Carlyle* group. And, I wonder, *"Is SBI 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 *Rs. 750-755.* I would have surely thought about investing in it provided this *Rs. 9000 Cr* would have been used for strengthening the company's business.
3. *What about the valuation?*
*Yes,* and let's explore the 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's* 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.
*AMEX*
*American express.*
Yes, at *Rs. 750.* 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's PE* is *17.* (half of it's business comes from *Credit Cards* segment only)
Which means *SBI Cards* at *Rs. 750.* 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,*
*- Good 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* operates in India as well. If *Credit Cards* business grows multiple folds, *AMEX* and other players will get benefitted too.
*I don't see a point of buying expensive shares of an inferior company.*
Well, on relative valuation front, I would again not apply in *SBI Card IPO.* this is comment by some one I pested it for our group knowledge.
Zerodha (Trading & Demat Account)
RHP
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