The mega IPO by SBI Cards and Payment Services (SBI) was subscribed 38.87 per cent on the first day of the bidding process on Monday.The price band for the issue is fixed at Rs 750-755 and the minimum amount one can invest by subscribing a lot of 19 shares is Rs 14,345.The issue received bids for 3,94,54,830 shares compared with the issue size of 10,02,79,411 shares, representing 38.87 per cent of the issue. The company has already raised Rs 2,769 crore from 74 anchor investors, including 12 mutual funds According to the company, SBI Card IPO saw record 8.52 lakh applications on the first day. The retail portion was subscribed 62 per cent, while the portion allotted for SBI shareholders saw a subscription of 69 per cent.While analysts dealing in listed and unlisted markets and the bankers to the issue do not see any trouble for the IPO in sailing through, prospective small investors must look at the key strengths and weaknesses before investing in the mega IPO.The biggest strength of the company is the SBI’s parentage, whose brand is highly trusted. The credit card-to-debit card ratio for SBI Card stands at 3.7 per cent for SBI Card compared with 45 per cent of HDFC Bank, 28 per cent for Axis Bank and 18 per cent for ICICI Bank, which suggests scope for SBI Card mining SBI customers.This along with a strong distribution network makes brokerages believe the asking valuations (at a huge premium) are justified.SBI Card at 29 times FY22 EPS is being offered at a significant premium to global peers, which are trading at 9-13 times FY22 EPS.The second-largest credit card issuer has grown its outstanding cards at a compounded annual growth rate (CAGR) of 28 per cent over FY2015-19 against industry growth of 23 per cent over the same period. Advances have grown at 34 per cent over FY 2017-19, even as NPAs at 2.3–2.4 per cent were higher than industry average. But such a low NPA rate in an unsecured business is commendable.Analysts noted that SBI Card has not seen its RoE dip below 25 per cent in the past six-seven years and has an average 30 per cent ROE during that time.The credit card business is based on two major revenue streams: Fee income and interest income. Interest income refers to a revolving line of credit that yields a very high annual percentage rate (APR) of 30-42 per cent for the industry. In case of fee income, fees are earned not only from the customer, but also from merchants where credit cards are used for making purchases.India’s merchant discount rate (MDR) rates range between 1.6-2.5 per cent. While MDR in debit cards is regulated, it is not regulated in credit cards so far.To give readers a fair view, banks' MDR and interest rates are capped at 60 basis points and 18 per cent in China.The company is involved in an appeal against an order given by National Consumer Disputes Resolution Redressal Commission regarding charging interest rate in excess of 30 per cent per annum from credit card holders.“If the Supreme Court of India upholds the order of the National Commission, this may adversely impact the company and all credit card issuing companies by capping of the interest rate charged from credit card holders, thereby having a negative impact on the revenue lines of the company,” YES Securities said.In all, brokerages said risks of cap on MDR or interchange fees, rising competition from alternative digital payment platforms, higher capital requirement and rising asset-quality risk given weakening macros and employment rates are key risks to the company.SBI Card has higher NPAs at 2.5-2.6 per cent against an industry average of 1 per cent. It will keep credit cost for SBI Card at an elevated level of 0.4 per cent, Prabhudas Lilladher said.“Rising presence in tier II and tier III cities, self-employed customer base and competition are a key risk, in our view,” the brokerage, which has a subscribe rating on the stock said.Emkay Global believes that the credit card player needs to focus on improving operating leverage, spends per card and convert spends into EMIs/term loans to bring stability to its otherwise superior RoAs.Asset-quality risk too is on the rise, given the weakening economic and employment trends and thus the company needs to be more vigilant, Emkay added.Sustainability of higher business growth and strong return ratios justify premium valuation for the business, said ICICI Direct.“A 25 per cent growth rate appears self-sustainable on current RoE and dividend payout. Asset quality cycle has been benign for nearly a decade now, thus any disruption in credit cost cycle could significantly impact valuation and sustainable growth rate,” YES Securities said while recommending subscribe on the issue.Geojit Financial Services, Angel Broking, Nirmal Bang Securities and Hem Securities, among others, have ‘subscribe’ ratings on the issue.