The threat of the Coronavirus did not scare away investors when the State Bank of India brought its IPO to market. Oversubscriptions to the stock offering were 15 times greater than anticipated. MoneyControl reports:
The issue has so far received bids for over 155.35 crore equity shares against IPO size of more than 10 crore equity shares (excluding anchor book), the exchanges data showed.
March 4 is the last day for qualified institutional bidders whose reserved portion was subscribed 57.18 times. The issue will remain open till March 5 for all other investors.
The portion set aside for non-institutional investors (or high networth individuals) saw 2.18 times subscription, while that of retail bidders 1.76 times.
Demand for the IPO was staggering, as India Times reports:
The issue received bids for 1,55,35,33,765 shares compared with the issue size of 10,02,79,411 shares. The qualified institutional investors (QIB) quota were subscribed to a whopping 57.18 times. Non-institutional investors (NII) quota 2.18 times, retail 1.77 times, employee 3.29 times, and SBI shareholder quota was bid 3.29 times.
Some investment analysts showed angst about the timing of State Bank of India (SBI) Initial Purchase Offering (IPO), with the concern of a global virus. Bloomberg writes:
With the world reeling from one of the most significant risk sell-offs since the global financial crisis, further coronavirus-fueled declines in India may impact the IPO’s over-subscription rate, which in turn may limit the premium on listing.
Well, not to worry, as they say. The IPO is on day three and shares are oversubscribed by a factor of 15 times listing. A venture capital company summarized the opportunity well. Admittedly, English is a little bumpy, but the thought process is keen.
- Significant opportunity to be seized as India’s credit card spends as a percentage of GDP is 3 percent as compared to South Korea – 37 percent, Hong Kong – 25 percent, US – 17 percent, Brazil – 12 percent
- 2nd most significant credit card issuer in India with a strong track record of growth and profitability
- Legacy of 20+ years
- A leading player in open market customer acquisitions using physical and digital channels in India
- Largest co-brand player
- Supported by a strong brand and pre-eminent promoter with SBI holding of 74 percent (pre IPO)
- Pan – India presence
- Technology driven operating model with an advanced digital platform
- Advanced risk management and data analytics capabilities
- Modern and scalable technology infrastructure
- Strong record of financial performance
- Robust RoAA of 4 percent + since FY17 and strong ROE of 28 percent+
Oversubscribing an IPO is a big deal because it can be an indicator of future performance.
The takeaways
While we do not in any way offer stock advice, we point to a few facts. It is hard to argue with demand when there is a 15X multiplier on market.
There is undoubtedly global concern about the virus; however, investors seem to look more for opportunity then risk. For now, at least.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
