The quarter's performance reflects a tale of two narratives: solid top-line momentum with net sales reaching ₹4,960.98 crores (up 12.21% YoY and 1.72% QoQ), contrasted sharply against deteriorating profitability metrics. The PAT margin compressed to 8.97% from 11.40% in the previous quarter, whilst operating margins excluding other income plunged to 24.58% from 29.48%—the lowest level in recent quarters. This margin erosion occurred despite interest costs remaining relatively stable at ₹760.07 crores, suggesting operational inefficiencies rather than funding cost pressures as the primary culprit.
Following the results announcement, SBI Cards' shares traded at ₹930.40, reflecting a year-to-date gain of 40.10% and outperforming the Sensex by 32.33 percentage points. However, the stock remains 9.06% below its 52-week high of ₹1,023.05, indicating market caution about near-term prospects despite the company's dominant market position.
| Quarter | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 | Jun'24 | Mar'24 | Dec'23 |
|---|---|---|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 4,960.98 | 4,876.92 | 4,673.95 | 4,618.69 | 4,421.04 | 4,358.64 | 4,347.72 | 4,621.70 |
| QoQ Growth | 1.72% | 4.34% | 1.20% | 4.47% | 1.43% | 0.25% | -5.93% | 13.07% |
| YoY Growth | 12.21% | 11.89% | 7.50% | -0.07% | 8.16% | 11.42% | 15.56% | 31.78% |
| Net Profit (₹ Cr) | 444.77 | 555.96 | 534.18 | 383.23 | 404.42 | 594.45 | 662.37 | 549.08 |
| Operating Margin (%) | 24.58% | 29.48% | 28.98% | 27.00% | 28.24% | 34.22% | 35.35% | 29.51% |
| PAT Margin (%) | 8.97% | 11.40% | 11.43% | 8.30% | 9.15% | 13.64% | 15.23% | 11.88% |
Financial Performance: Revenue Resilience Masks Profitability Concerns
SBI Cards demonstrated commendable revenue resilience in Q2 FY26, with net sales of ₹4,960.98 crores representing a 12.21% year-on-year increase and 1.72% sequential growth. This top-line expansion reflects the company's ability to maintain market share in India's competitive credit card landscape, where spend volumes continue growing despite economic uncertainties. The revenue trajectory shows consistent improvement from the ₹4,421.04 crores reported in Sep'24, indicating sustained customer engagement and transaction momentum.
However, the profitability picture tells a markedly different story. The operating profit before depreciation, interest, and tax (excluding other income) stood at ₹1,219.35 crores in Q2 FY26—the lowest level recorded in recent quarters and representing a sharp 15.19% decline from the previous quarter's ₹1,437.74 crores. This translated into an operating margin of 24.58%, down a significant 488 basis points quarter-on-quarter and 366 basis points year-on-year. The margin compression appears structural rather than temporary, with the metric consistently trending downward from the 35.35% peak achieved in Mar'24.
The net profit of ₹444.77 crores, whilst showing year-on-year growth of 9.98%, fell 20.00% sequentially from ₹555.96 crores in Q1 FY26. This decline exceeded the operating profit drop, suggesting additional pressure from below-the-line items. The PAT margin of 8.97% represents a concerning deterioration from 11.40% in the previous quarter, indicating that cost management challenges extend beyond operational expenses. Interest costs of ₹760.07 crores actually declined 6.49% quarter-on-quarter, ruling out funding costs as the primary driver of margin compression.
Employee costs remained relatively stable at ₹157.62 crores, down marginally from ₹161.42 crores in Q1 FY26, suggesting workforce optimisation efforts. However, this modest saving proved insufficient to offset broader operational headwinds. The profit before tax of ₹599.77 crores fell 19.86% sequentially, whilst the tax rate remained steady at 25.84%, in line with the company's historical effective tax rate.
⚠️ Margin Pressure Alert
Critical Observation: Operating margins have declined for three consecutive quarters, falling from 34.22% in Jun'24 to 24.58% in Sep'25—a cumulative erosion of 964 basis points. This persistent downward trend suggests structural challenges in cost management or competitive pricing pressures that require immediate management attention. The PAT margin compression to 8.97% represents the second-lowest level in the past eight quarters, raising concerns about sustainable profitability.
Operational Dynamics: Balance Sheet Strength Amid Efficiency Concerns
SBI Cards maintains a robust balance sheet with shareholder funds of ₹13,781.72 crores as of Mar'25, reflecting a healthy 14.06% increase from the previous year. The company's book value per share stands at ₹144.86, providing a solid foundation for future growth. With zero long-term debt on the books, the company demonstrates conservative leverage management, particularly noteworthy given the capital-intensive nature of the credit card business.
However, the return on equity metric reveals efficiency challenges. At 13.64% for Q2 FY26, ROE has declined from the company's five-year average of 18.73%, indicating diminishing capital productivity. Whilst this remains respectable within the NBFC sector, the downward trajectory warrants attention. The company's ability to generate returns from its expanding equity base appears constrained by the margin pressures discussed earlier, creating a concerning dynamic where growth dilutes rather than enhances shareholder returns.
The company's asset base continues expanding, with current assets reaching ₹3,252.04 crores as of Mar'25, supporting the growing credit card portfolio. Current liabilities of ₹53,607.88 crores reflect the substantial borrowing base required to fund card receivables, resulting in a debt-to-equity ratio of 3.12. Whilst elevated, this leverage level remains manageable for a financial services company, particularly given the relatively short-duration nature of credit card receivables.
Cash flow dynamics present a mixed picture. The company generated negative operating cash flow of ₹2,140 crores in FY25, reflecting the working capital intensity of portfolio expansion. However, this was more than offset by financing cash flows of ₹4,686 crores, demonstrating continued access to funding markets. The closing cash position of ₹2,537 crores provides adequate liquidity cushion, though the reliance on external funding for growth remains a structural characteristic of the business model.
Capital Efficiency Challenge
The decline in ROE from a five-year average of 18.73% to 13.64% in Q2 FY26 represents a 509 basis point deterioration in capital productivity. This erosion stems primarily from margin compression rather than capital base expansion, indicating operational rather than structural issues. Management's ability to reverse this trend will determine whether the current valuation premium remains justified.
Industry Context: Navigating Competitive Intensity
India's credit card industry continues experiencing robust growth, with spend volumes expanding as digital payments gain traction and consumer credit appetite strengthens. However, this growth has attracted intense competition from both traditional banks and fintech disruptors, creating pricing pressures that manifest in margin compression across the sector. SBI Cards, despite its market leadership position, cannot escape these industry-wide dynamics.
The company's 12.21% year-on-year revenue growth, whilst solid, lags the industry's overall expansion rate, suggesting potential market share erosion. This becomes particularly concerning when viewed alongside the margin deterioration, indicating that the company may be sacrificing profitability to maintain competitive positioning. The sequential revenue growth of just 1.72% in Q2 FY26 further underscores the challenges in sustaining momentum.
Regulatory developments continue shaping the competitive landscape. Recent Reserve Bank of India guidelines on customer protection and interest rate disclosures have increased compliance costs across the sector. Additionally, the central bank's focus on asset quality and provisioning norms requires enhanced risk management infrastructure, adding to operational expenses. These regulatory headwinds disproportionately impact larger players like SBI Cards, which face greater scrutiny and compliance burdens.
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity | Div Yield (%) |
|---|---|---|---|---|---|
| SBI Cards | 47.03 | 6.42 | 13.64 | 3.27 | 0.27 |
| Shriram Finance | 15.75 | 2.36 | 14.67 | 4.15 | 1.40 |
| Aditya Birla Capital | 23.65 | 2.65 | 10.90 | 4.61 | 0.00 |
| Muthoot Finance | 20.73 | 4.34 | 20.96 | 3.38 | 0.82 |
| L&T Finance | 24.73 | 0.25 | 1.02 | 0.37 | 1.01 |
Peer Comparison: Premium Valuation Under Scrutiny
SBI Cards commands a significant valuation premium relative to NBFC peers, trading at 47.03 times trailing twelve-month earnings—nearly triple the 15.75x multiple for Shriram Finance and more than double Muthoot Finance's 20.73x. This premium historically reflected the company's market leadership, strong parentage through State Bank of India's 68.59% stake, and superior growth prospects in the underpenetrated credit card segment.
However, the recent operational performance raises questions about whether this premium remains justified. SBI Cards' ROE of 13.64% trails both Shriram Finance (14.67%) and significantly lags Muthoot Finance (20.96%), indicating inferior capital efficiency despite the valuation gap. The price-to-book ratio of 6.42x stands substantially above peer averages, with only Muthoot Finance's 4.34x coming remotely close. This suggests the market continues pricing in substantial future growth and profitability improvements that current trends don't support.
The debt-to-equity ratio of 3.27 positions SBI Cards favourably against peers like Shriram Finance (4.15x) and Aditya Birla Capital (4.61x), reflecting conservative leverage management. However, this balance sheet strength hasn't translated into superior returns, highlighting execution challenges. The minimal dividend yield of 0.27% significantly trails most peers, indicating management's preference for retained earnings to fund growth—a strategy that makes sense only if capital deployment generates adequate returns.
"At 47x earnings and 6.4x book value, SBI Cards trades at a substantial premium to NBFC peers, yet its 13.64% ROE trails sector leaders—a valuation-fundamentals disconnect that margin pressures are exposing."
Valuation Analysis: Expensive Multiples Demand Performance Turnaround
Trading at ₹930.40 with a market capitalisation of ₹87,618 crores, SBI Cards carries a "Very Expensive" valuation grade according to proprietary metrics. The P/E ratio of 47.15x represents a significant premium not only to NBFC peers but also to the broader market, reflecting investor expectations of superior growth and profitability that recent results challenge.
The price-to-book ratio of 6.43x implies the market values the company's franchise and growth potential at more than six times its net asset value. Whilst such premiums can be justified for high-ROE businesses with strong competitive moats, the declining return on equity raises concerns about whether this valuation remains sustainable. Historical valuation transitions show the stock moved from "Expensive" to "Very Expensive" in early January 2025 at ₹703, since when it has appreciated 32.36% to current levels—outpacing fundamental improvement.
The enterprise value-to-EBITDA multiple of 23.55x and EV/Sales of 6.70x further underscore the rich valuation. These metrics suggest investors are pricing in substantial margin expansion and growth acceleration—precisely the opposite of what recent quarterly trends demonstrate. The stock's 40.10% year-to-date gain and 30.81% one-year return significantly outpace the Sensex, creating a performance-valuation mismatch that increases downside risk if operational challenges persist.
The 52-week trading range of ₹660.00 to ₹1,023.05 reflects significant volatility, with the current price 40.97% above the low but 9.06% below the high. This positioning suggests the market has partially corrected from earlier exuberance but hasn't fully repriced for the margin pressure reality. Technical indicators show a "Mildly Bullish" trend that emerged in early October, though this momentum appears disconnected from fundamental deterioration.
Shareholding Pattern: Stable Promoter Base, Institutional Confidence Building
The shareholding structure reveals remarkable stability, with State Bank of India maintaining its 68.59% promoter stake unchanged over recent quarters. This substantial holding provides strategic stability and alignment with India's largest bank, offering distribution advantages and brand credibility that competitors struggle to replicate. The absence of any promoter pledging further underscores the parent's long-term commitment.
| Category | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|
| Promoter | 68.59% | 68.59% | 68.60% | 0.00% |
| FII | 10.10% | 10.22% | 9.88% | -0.12% |
| Mutual Funds | 10.07% | 9.84% | 9.66% | +0.23% |
| Insurance | 6.75% | 6.74% | 6.74% | +0.01% |
| Other DII | 0.94% | 0.92% | 0.82% | +0.02% |
| Non-Institutional | 3.55% | 3.68% | 4.30% | -0.13% |
Institutional holdings show nuanced trends. Foreign institutional investors reduced their stake marginally to 10.10% from 10.22% in the previous quarter, though this represents a modest 0.12 percentage point decline that could reflect portfolio rebalancing rather than fundamental concerns. The number of FIIs decreased from 510 to 508, suggesting selective exits rather than broad-based selling.
More encouragingly, domestic institutional investors demonstrated growing confidence. Mutual fund holdings increased to 10.07% from 9.84%, with the number of participating funds rising from 32 to 33. Insurance company holdings remained stable at 6.75%, with participation expanding from 20 to 21 entities. Other domestic institutional investors increased their stake to 0.94% from 0.92%, with participation growing from 25 to 27 entities. This domestic institutional accumulation suggests sophisticated local investors see value despite near-term challenges.
The non-institutional shareholding declined to 3.55% from 3.68%, with the number of such holders falling from 774,053 to 750,195—a reduction of approximately 24,000 retail investors. This exodus of smaller shareholders often signals concerns about near-term performance, though it also reduces the stock's retail speculation component, potentially leading to more rational pricing.
Stock Performance: Strong Returns Masking Fundamental Weakness
SBI Cards has delivered impressive absolute returns across most timeframes, with the stock appreciating 30.81% over the past year and 40.10% year-to-date, substantially outperforming the Sensex's 5.18% and 7.77% returns respectively. This 25.63 percentage point alpha generation over one year reflects investor enthusiasm for the credit card growth story and the company's market leadership position.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | 0.44% | 0.31% | +0.13% |
| 1 Month | 5.25% | 3.05% | +2.20% |
| 3 Months | 5.06% | 2.47% | +2.59% |
| 6 Months | 0.38% | 5.53% | -5.15% |
| YTD | 40.10% | 7.77% | +32.33% |
| 1 Year | 30.81% | 5.18% | +25.63% |
| 2 Years | 20.14% | 30.42% | -10.28% |
| 3 Years | 8.89% | 40.75% | -31.86% |
However, the performance picture deteriorates significantly over longer timeframes. The two-year return of 20.14% lags the Sensex's 30.42%, generating negative alpha of 10.28 percentage points. Over three years, the stock has delivered just 8.89% returns compared to the Sensex's 40.75%—a massive 31.86 percentage point underperformance that reflects the prolonged margin pressure challenges.
The volatility profile reveals a medium-risk, high-return classification over the past year, with stock volatility of 26.32% compared to the Sensex's 12.53%. The beta of 1.20 indicates the stock tends to amplify market movements, rising and falling by approximately 20% more than the broader index. This elevated beta, combined with deteriorating fundamentals, creates asymmetric risk where downside moves could exceed upside potential.
Recent performance shows mixed momentum. The one-month return of 5.25% and three-month return of 5.06% both outpace the Sensex, suggesting near-term technical strength. However, the six-month return of just 0.38% significantly trails the market's 5.53%, indicating the recent rally represents a recovery from weakness rather than sustained outperformance. The stock trades above its 20-day, 50-day, 100-day, and 200-day moving averages, technically bullish signals that appear disconnected from fundamental reality.
Investment Thesis: Quality Franchise Facing Execution Headwinds
SBI Cards presents a paradoxical investment proposition: an "Excellent" quality company with strong institutional backing and market leadership, trading at expensive valuations whilst delivering deteriorating operational performance. The proprietary Mojo Score of 65/100 assigns a "HOLD" rating, reflecting this tension between long-term franchise value and near-term execution concerns.
The quality assessment remains favourable, with the company maintaining "Excellent" status for 15 consecutive quarters since December 2021. This reflects consistent profitability over a decade, healthy institutional participation of 27.86%, and an average ROE of 18.73% over five years. The five-year sales CAGR of 14.71% and EBIT growth of 13.92% demonstrate the company's ability to capture India's credit card market expansion.
However, the financial trend has turned "Flat" for two consecutive quarters, with key negative factors including the lowest operating profit-to-sales ratio at 24.58%, declining profit before tax excluding other income, and PAT falling 5.3% versus the previous four-quarter average. These deteriorating metrics occur despite revenue growth, indicating structural margin pressures that management hasn't adequately addressed.
The technical picture shows a "Mildly Bullish" trend that emerged on 3rd October 2025 at ₹893.60, with the stock appreciating 4.3% since. However, this bullish technical signal appears disconnected from fundamental deterioration, creating risk that technical support breaks if operational metrics don't improve. The MACD and Bollinger Bands show bullish signals on weekly and monthly timeframes, though moving averages present a mixed picture with daily indicators turning mildly bearish.
Key Strengths & Risk Factors
✓ Key Strengths
- Market Leadership: Second-largest credit card issuer with strong brand recognition and extensive distribution through SBI network
- Promoter Backing: 68.59% stake held by State Bank of India provides strategic stability, distribution advantages, and funding access
- Revenue Growth: 12.21% YoY revenue growth demonstrates ability to capture market expansion despite competitive pressures
- Balance Sheet Strength: Zero long-term debt and debt-to-equity ratio of 3.12 reflects conservative leverage management
- Institutional Confidence: 27.86% institutional holdings with recent domestic mutual fund and insurance accumulation
- Quality Track Record: "Excellent" quality grade maintained for 15 consecutive quarters with consistent profitability over a decade
- Strong Returns: 30.81% one-year return and 40.10% YTD gain significantly outpacing broader market indices
⚠ Key Concerns
- Margin Compression: Operating margin declined to 24.58% from 29.48% QoQ—lowest in eight quarters and 964 bps below Jun'24 peak
- Profitability Decline: Net profit fell 20.00% QoQ to ₹444.77 crores despite revenue growth, indicating operational inefficiency
- ROE Deterioration: Return on equity at 13.64% trails five-year average of 18.73%, showing declining capital productivity
- Expensive Valuation: P/E of 47.15x and P/BV of 6.43x represent substantial premiums that recent performance doesn't justify
- Competitive Pressure: Intense competition from banks and fintechs creating pricing pressures visible in margin trends
- Negative Operating Cash Flow: ₹2,140 crores negative operating cash flow in FY25 reflects working capital intensity and funding dependence
- Long-term Underperformance: Three-year return of 8.89% significantly lags Sensex's 40.75%, generating 31.86 percentage point negative alpha
Outlook: What to Watch
Positive Catalysts
- Margin Stabilisation: Evidence of operating margin bottoming out and beginning recovery towards historical 30%+ levels
- ROE Improvement: Return on equity trending back towards 18%+ range, demonstrating improved capital efficiency
- Market Share Gains: Revenue growth accelerating above 15% YoY, indicating competitive positioning strengthening
- Cost Optimisation: Management commentary on specific initiatives to address operational expense pressures
- Portfolio Quality: Stable or improving asset quality metrics demonstrating prudent underwriting amid growth
Red Flags
- Further Margin Erosion: Operating margins declining below 24% would signal structural profitability challenges
- Revenue Growth Slowdown: Top-line growth falling below 10% YoY indicating market share losses to competitors
- ROE Below 12%: Further decline in return on equity would make expensive valuation untenable
- FII Exodus: Sustained foreign institutional selling beyond current marginal reductions
- Negative Earnings Surprise: Q3 FY26 results showing continued or accelerating profitability deterioration
Forward Outlook
The coming quarters will prove critical for SBI Cards' investment thesis. Management must demonstrate concrete progress on margin stabilisation and provide credible explanations for the recent deterioration. Investors should monitor Q3 FY26 results closely for evidence that operating margins have bottomed, as continued compression would severely challenge the valuation premium. The company's ability to balance growth with profitability whilst maintaining asset quality will determine whether current shareholders are rewarded or disappointed.
The broader industry environment remains supportive, with credit card penetration in India still low by global standards and digital payment adoption accelerating. However, this growth opportunity has attracted intense competition, and SBI Cards must leverage its distribution advantages and brand strength more effectively to defend market share without sacrificing margins. The parent bank's support provides strategic advantages, but execution ultimately determines success.
Investment Verdict
Score: 65/100
For Fresh Investors: Avoid initiating positions at current levels. The "Very Expensive" valuation combined with deteriorating operational metrics creates unfavourable risk-reward dynamics. Wait for either meaningful valuation correction (15-20% pullback) or clear evidence of margin stabilisation before considering entry.
For Existing Holders: Maintain positions given the excellent quality franchise and strong promoter backing, but closely monitor Q3 FY26 results for margin trends. Consider reducing exposure if operating margins decline below 24% or ROE falls below 12%, as these would signal structural challenges that expensive valuations cannot sustain.
Fair Value Estimate: ₹780-820 (16-20% downside from current levels) based on 35-40x earnings multiple and assuming margin stabilisation. Current 47x P/E demands operational excellence that recent quarters haven't delivered.
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions.
