The world is reeling from the adverse side effects of COVID-19, which spread far and beyond the health industry and infiltrated other major sectors of the economy. In such trying times, stock analysts around the country are wondering whether it would be safe to continue investing in stocks, and if so, what would be the most reliable stock to invest in.
One of the safest contenders for investment even during the current economic situation is the State Bank Of India, especially their SBI card IPO. Considered to be the second-largest credit card issuers in India, SBI holds an 18.0% market share of the Indian credit card market. This has been calculated in terms of the number of credit cards outstanding, as per extensive SBI stock analysis.
It was earlier believed that the credit card business in India is at a very nascent stage. However, with the country fast-tracking its way towards a cashless economy, the growth of credit cards seems inevitable. Furthermore, the credit card business has good prospects in the future as the younger generation prefers to use them for their consumption needs.
Many stock market analysts suggest that SBI’s earnings on a standalone basis are expected to rise over the next couple of years. This jump will be aided by factors that include robust expansion of NIM, a further increase in loan growth, and revival in core fee growth.
The only deterrent would be the overall macroeconomic slowdown in current times, coupled with any new stress sectors that may have an impact on the credit cost recovery. This is the only factor that most analysts are worried about. But given their stellar position in the industry, SBI share price prediction seems to be flying high.
If you didn’t know this, SBI Card is a subsidiary of State Bank of India. They offer an extensive credit card portfolio to their cardholders and corporate clients which include lifestyle, rewards, travel and fuel, and shopping. They also provide banking partnership cards, along with corporate cards that cover all major cardholder segments in terms of income profiles and lifestyles.
However, before actually jumping the gun and landing in a fire you can’t escape unscathed, here are some things about SBI Card IPO that you should know about.
- SBI Card has a broad credit card portfolio that includes SBI Card-branded credit cards along with co-branded credit cards that bear the SBI Card brand and their co-brand partners’ brands.
- Their partnership with SBI provides them access to the bank’s extensive network of 22,007 branches across India. This, in turn, enables them to market their credit cards to SBI’s vast customer base of 43.6 crore customers.
- They generate three types of income:
- Non-interest income, which primarily consists of fee-based income in the form of interchange fees, late fees, and annual fees, among others.
- Interest earned from credit card loans.
- MDR or Merchant Discount Rate. It refers to the fees that credit card companies charge a merchant for providing the facility to pay (through a credit card) when a customer buys any product or service. In simpler terms, if the Credit Card company is charging Rs.100 as MDR Fees from the merchant, then 75-80 percent of it goes to the Credit Card company. The other 20-25 per cent goes to the network provider, or rest to the POS machine provider.
Researching the details mentioned above about SBI and doing a detailed SBI stock analysis should give you a better idea of the State Bank of India stock price. Now that you know more about their IPO, here’s why investing in SBI stocks would be a good option:
- SBI stock analysis suggests that they have unique businesses to list on bourses. Therefore, SBI Cards got the first-mover advantage. They have also shown tremendous growth in the credit card addition and total payment done through these cards in the last 3 years. And that is why state bank of India stock prices seem to be going upbeat for the future as well.
- According to the available stats on card transactions in the country, the total number of credit cards in India is just 5 Cr, pitched against a mammoth 82 Cr debit cards. Therefore, investing in credit cards would be a huge growth opportunity.
- They have the added advantage of a strong base of 45 Cr SBI customers, where all these customers can be translated into potential credit card clients.
- SBI comes with a strength of 18 co-branded partnerships in its bucket, the highest in the industry compared to other players, followed by ICICI Bank at 12 and RBL Bank at 8. The credit card spends from these co-branded credit cards, as per stock analysis forecasts, increased to 24.7 percent from 19.3 percent of total credit card spends.
- The company launched six new products during 9M FY 2019, as compared to four in the entire FY 2019. The number stood at 6-7 during FY 2018 and 2017, respectively, indicating an ever-increasing growth in the market.
- It has partnerships with some of the top brands across various industries. Their portfolio includes industry stalwarts like Air India, Apollo Hospitals, BPCL, Etihad Guest, Fbb, IRCTC, OLA Money, and Yatra.
Considering how SBI cards IPO was on the upper end of the price band of Rs 750-755 per share, with estimated EPS at Rs 16.6 for FY 20, the stock was available at a P/E ratio of 45.48x. Given how SBI dominates more than 70 per cent market share, coupled with SBI’s strong parentage, niche business, and extreme growth outlook, they command high P/E. Hence, SBI stocks can be given high premium valuations.
The only risk that credit card companies might have would be the impact on business due to the slowdown in the economy as an aftermath of the ongoing pandemic. In the slowing economy, the loss of jobs that seemed to happen quite fast tends to become the first casualty on credit card payments all around the world. Because some small businesses and companies don’t seem to have any other source of income, the risk to credit cards and credit payments may increase in a prolonged slowdown.