SBI Cards IPO opens for subscription today, to tell us if as an investor there is something in it for you or not CNBC-TV18 spoke with Siddharth Purohit of SMC Institutional Equities.

Share Market Live

NSE

On valuations, he said, “This company cannot be valued based on price to book because it is not a pure play NBFC like others. Secondly, if you look at the growth rate, when any company or corporate which is growing very fast and at a point of inflection certainly the traditional parameter will not be able to justify. So, the 45 times PE multiple is based on the nine months data on annualised basis. Seeing the past track record one is satisfied that they are in a position to justify the premium valuation.”

According to him, there are very few BFSI companies which can deliver 30-35 percent ROE. So, even if one were to assume that there would be some moderation in the ROE going forward because of some moderation in growth etc and even if they are able to deliver 25 percent ROE - there are not many NBFCs that deliver 25 percent ROE on a sustainable basis.

There are also lot of cost advantages like if one were to look at the cost to income ratio etc. So, if you look at all the qualitative parameters than it is justified so one should not look at the trailing numbers and come to a conclusion that 45 times PE and hence it is like expensive, said Purohit, adding that maybe two-three years down the line they may double their profit. So, one can look at it from that point of view. “Low penetration, digitisation all these things are practically playing out and that is visible in the bottom line of the company and hence the house is positive and have a subscribe rating on the issue,” he added.

Talking about long term gains he said, “There is lot of institutional interest in this where there are people ready to enter even at 30-40 percent premium levels."

Moreover, if one has a longer horizon then I don’t see any concerns - obviously being an NBFC and unsecured business there are risk associated with the business but from a 3-4 years horizon this can be a good story. "So, even after listing if somebody gets in there is a potential that one can make good amount of money that is what our take is,” he said.

Speaking about competition and risk factors Purohit said, “Competition will be there but the brand name that they carry and the branch network of SBI that they can leverage will be one of the biggest growth drivers for them. So, I don’t see competition as a biggest risk."

"One risk is that it is purely unsecured business so credit cost can hike up if there is a further slowing in the economy where it can result in job losses and some amount of slippages going up. However, even if I factor those things the numbers can look quite decent going forward," he said, adding that another risk could be that of regulatory risk.