The December quarter results revealed a tale of two narratives: strong top-line momentum with revenue climbing 11.01% year-on-year to ₹5,127.26 crores, contrasted against operating margin erosion that saw profitability metrics slip below historical averages. With the stock trading 24.29% below its 52-week high and institutional investors adjusting positions, the results underscore the challenges facing India's largest credit card specialist as it navigates a competitive landscape marked by rising funding costs and intensifying regulatory scrutiny.
The December quarter marked a significant inflection point for SBI Cards, with net profit recovering sharply from the subdued ₹444.77 crores reported in Q2 FY26. On a year-on-year basis, the 45.25% profit growth substantially outpaced revenue expansion, driven by improved operational efficiency and better asset quality management. However, the company's operating margin excluding other income stood at 26.17%, a sequential improvement from 24.58% in Q2 but still below the 34.22% achieved in the year-ago quarter, reflecting ongoing pressure on core profitability.
| Quarter | Revenue (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | QoQ Growth | PAT Margin |
|---|---|---|---|---|---|
| Dec'25 | 5,127.26 | +3.35% | 556.64 | +25.18% | 10.86% |
| Sep'25 | 4,960.98 | +1.72% | 444.77 | -20.00% | 8.97% |
| Jun'25 | 4,876.92 | +4.34% | 555.96 | +4.08% | 11.40% |
| Mar'25 | 4,673.95 | +1.20% | 534.18 | +39.39% | 11.43% |
| Dec'24 | 4,618.69 | +4.47% | 383.23 | -5.23% | 8.30% |
| Sep'24 | 4,421.04 | +1.43% | 404.42 | -31.96% | 9.15% |
| Jun'24 | 4,358.64 | — | 594.45 | — | 13.64% |
Financial Performance: Revenue Growth Outpaces Margin Recovery
SBI Cards delivered consistent revenue growth in Q3 FY26, with total income rising to ₹5,127.26 crores from ₹4,960.98 crores in the previous quarter. The 3.35% sequential expansion was complemented by robust 11.01% year-on-year growth, demonstrating resilient demand for credit cards despite macroeconomic headwinds. For the nine-month period ending December 2025, the company generated cumulative revenue of ₹14,965.16 crores, representing healthy double-digit growth over the corresponding period last year.
The profit after tax margin improved notably to 10.86% in Q3 from 8.97% in Q2, though it remained below the 13.64% achieved in June 2024. This margin volatility reflects the ongoing challenge of balancing growth investments with profitability optimisation. Operating profit before depreciation, interest, and tax (excluding other income) stood at ₹1,341.90 crores, up 10.05% quarter-on-quarter but down from ₹1,491.42 crores in the year-ago quarter, highlighting pressure on core operating efficiency.
Interest expenses remained elevated at ₹785.07 crores, up 3.29% sequentially from ₹760.07 crores, as the company continues to fund its expanding credit card portfolio in a rising rate environment. Employee costs climbed to ₹184.35 crores from ₹157.62 crores, reflecting a 16.97% quarter-on-quarter increase driven by headcount additions and wage inflation. The tax rate remained stable at 25.69%, consistent with the company's historical effective tax rate of approximately 25.7%.
Operational Challenges: Leverage Concerns Overshadow Growth
The company's balance sheet reveals a critical area of concern that has increasingly drawn investor attention. SBI Cards operates with a debt-to-equity ratio of 3.33 times as of March 2025, representing one of the highest leverage levels in its peer group. This elevated gearing ratio, whilst typical for NBFCs in the credit card business, limits financial flexibility and amplifies sensitivity to interest rate movements and asset quality deterioration.
Current liabilities surged to ₹53,607.88 crores in FY25 from ₹47,809.52 crores in FY24, marking a 12.12% year-on-year increase that outpaced asset growth. Shareholder funds stood at ₹13,781.72 crores, up 14.05% from ₹12,084.03 crores, but the pace of equity capital accumulation has lagged liability expansion. This imbalance necessitates careful monitoring of funding costs and asset quality metrics going forward.
Leverage Alert: High Debt-to-Equity Demands Vigilance
Critical Metric: Debt-to-Equity ratio of 3.33x represents the highest level amongst immediate peers, constraining financial flexibility and magnifying interest rate risk exposure. Whilst the company maintains adequate capitalisation, the elevated leverage amplifies vulnerability to asset quality shocks and limits capacity for aggressive growth without dilutive equity raises.
Return on equity (ROE) averaged 18.56% over the past five years, a respectable figure that demonstrates efficient capital utilisation. However, the latest ROE of 12.97% marks a notable decline from historical averages, reflecting margin compression and the impact of higher funding costs. Return on capital employed (ROCE) stood at just 8.47%, significantly below the company's cost of capital, raising questions about value creation at current growth rates.
Asset Quality Deep Dive: Provisioning Trends Under Scrutiny
Whilst specific non-performing asset (NPA) data for Q3 was not disclosed in the quarterly results, the company's annual financials provide context on asset quality trends. The credit card industry has witnessed heightened delinquency rates across the sector in recent quarters, driven by aggressive customer acquisition in tier-2 and tier-3 markets and rising household indebtedness. SBI Cards, with its extensive retail franchise and focus on mass-market segments, remains exposed to these broader industry headwinds.
The company's provisioning expenses and credit costs have shown volatility over recent quarters, as evidenced by the fluctuating profit margins. Operating profit before interest and tax (PBDIT) excluding other income declined 10.03% year-on-year in Q3 despite revenue growth, suggesting higher provisioning or operating expenses absorbed a significant portion of top-line gains. This trend warrants close monitoring as a potential early warning signal for asset quality pressures.
Key Insight: Margin Compression Reflects Structural Pressures
The 805 basis point year-on-year decline in operating margin (excluding other income) from 34.22% to 26.17% cannot be attributed solely to cyclical factors. This structural compression reflects intensifying competition in customer acquisition, rising funding costs, and potentially higher credit costs. Management's ability to stabilise margins around current levels will be critical to maintaining investor confidence and justifying the stock's premium valuation.
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity | Div Yield |
|---|---|---|---|---|---|
| SBI Cards | 38.81x | 5.03x | 18.56% | 3.33x | 0.32% |
| Muthoot Finance | 21.89x | 4.87x | 20.04% | 3.76x | 0.65% |
| Jio Financial | 102.48x | 1.20x | 1.18% | 0.08x | 0.20% |
| Tata Capital | 39.19x | 3.96x | — | — | — |
| Cholamandalam Inv | 29.69x | 5.32x | 17.68% | 7.23x | 0.12% |
| Aditya Birla Capital | 27.97x | 2.84x | 13.07% | 4.86x | — |
Peer Comparison: Premium Valuation Faces Justification Test
SBI Cards trades at a price-to-earnings multiple of 38.81 times trailing twelve-month earnings, representing a substantial premium to the NBFC sector average P/E of 22 times. This valuation premium has historically been justified by the company's market leadership in credit cards, strong parentage through State Bank of India's 68.58% promoter holding, and superior ROE profile relative to diversified NBFCs.
However, the company's price-to-book value ratio of 5.03 times significantly exceeds peers such as Aditya Birla Capital (2.84x) and Tata Capital (3.96x), whilst matching Cholamandalam Investment (5.32x). With ROE of 18.56% marginally below Muthoot Finance's 20.04% but substantially above Aditya Birla Capital's 13.07%, the valuation premium appears increasingly stretched given the recent margin compression and flat financial trend.
The company's dividend yield of 0.32% trails Muthoot Finance's 0.65%, offering limited income support for investors in a volatile market environment. With a latest dividend of ₹2.50 per share declared in February 2025, the payout remains modest relative to earnings, reflecting management's preference for retaining capital to support balance sheet growth amidst high leverage levels.
Valuation Analysis: Expensive Multiple Demands Margin Revival
At the current market price of ₹774.55, SBI Cards trades at enterprise value-to-EBITDA multiple of 22.88 times, EV-to-EBIT of 23.40 times, and EV-to-sales of 6.29 times. These elevated multiples position the stock in the "Very Expensive" valuation category, a designation it has held with brief interruptions since November 2024. The stock's valuation grade history reveals multiple oscillations between "Expensive" and "Very Expensive" over recent months, reflecting market uncertainty about the sustainability of the company's premium rating.
The stock has corrected 24.29% from its 52-week high of ₹1,023.05 achieved earlier in the year, but remains 8.76% above its 52-week low of ₹712.15. This positioning suggests the market has partially priced in near-term challenges whilst maintaining conviction in the long-term growth narrative. However, with the stock trading at 39 times earnings against an industry average of 22 times, the valuation leaves limited room for disappointment.
Based on current fundamentals and peer valuations, a fair value estimate for SBI Cards centres around ₹680-₹720 per share, implying 12-17% downside from current levels. This target range assumes operating margins stabilise around 27-28%, ROE gradually recovers towards 16-17%, and the company maintains its market leadership without significant market share erosion. Any further margin compression or asset quality deterioration could push fair value towards the lower end of this range.
Shareholding Dynamics: Institutional Confidence Remains Intact
The shareholding pattern for Q3 FY26 reveals stable institutional participation with marginal adjustments across categories. State Bank of India's promoter holding stood at 68.58% as of December 2025, down marginally by 0.01 percentage point from 68.59% in September 2025. This minimal reduction reflects routine treasury stock adjustments rather than any strategic shift in the parent bank's commitment to the subsidiary.
| Category | Dec'25 | Sep'25 | Jun'25 | QoQ Change |
|---|---|---|---|---|
| Promoter | 68.58% | 68.59% | 68.59% | -0.01% |
| FII | 10.15% | 10.10% | 10.22% | +0.05% |
| Mutual Funds | 10.31% | 10.07% | 9.84% | +0.24% |
| Insurance | 6.59% | 6.75% | 6.74% | -0.16% |
| Other DII | 0.94% | 0.94% | 0.92% | 0.00% |
| Non-Institutional | 3.42% | 3.55% | 3.68% | -0.13% |
Foreign institutional investors marginally increased their stake to 10.15% from 10.10%, indicating continued international interest despite valuation concerns. More notably, mutual fund holdings rose to 10.31% from 10.07%, representing the fourth consecutive quarter of accumulation. This 0.24 percentage point increase translates to approximately ₹177 crores of fresh investments, signalling domestic institutional conviction in the company's long-term prospects.
Insurance company holdings declined to 6.59% from 6.75%, with a 0.16 percentage point reduction suggesting some profit booking by long-term investors. Non-institutional holdings continued their downward trajectory, falling to 3.42% from 3.55%, indicating retail investor caution amidst the stock's underperformance and technical weakness. Overall institutional holding of 28.00% remains robust, providing a stable shareholder base that should limit downside volatility.
Stock Performance: Sustained Underperformance Across Timeframes
SBI Cards has significantly underperformed broader market indices across multiple timeframes, with the stock declining 0.98% on January 29, 2026, compared to the Sensex's 0.65% fall. Over the past month, the stock has corrected 8.84% against the Sensex's 3.40% decline, generating negative alpha of 5.44 percentage points. This underperformance has intensified over the three-month period, with the stock down 14.96% whilst the Sensex fell just 3.75%, resulting in negative alpha of 11.21 percentage points.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -1.86% | -0.60% | -1.26% |
| 1 Month | -8.84% | -3.40% | -5.44% |
| 3 Months | -14.96% | -3.75% | -11.21% |
| 6 Months | -5.64% | +0.58% | -6.22% |
| YTD | -10.11% | -4.00% | -6.11% |
| 1 Year | +1.68% | +6.90% | -5.22% |
| 2 Years | +8.24% | +13.72% | -5.48% |
| 3 Years | +10.70% | +37.89% | -27.19% |
The stock's one-year return of 1.68% pales against the Sensex's 6.90% gain, whilst the three-year return of 10.70% dramatically trails the benchmark's 37.89% advance. This persistent underperformance has resulted in cumulative negative alpha of 27.19 percentage points over three years, ranking SBI Cards amongst the weakest performers in the NBFC sector. The stock has also lagged its immediate peer group, with the NBFC sector delivering 20.92% returns over the past year compared to SBI Cards' 1.68%, representing underperformance of 19.24 percentage points.
From a technical perspective, the stock trades below all major moving averages—5-day (₹779.07), 20-day (₹838.78), 50-day (₹856.71), 100-day (₹870.20), and 200-day (₹880.71)—signalling sustained bearish momentum. The current trend classification of "Bearish" since January 20, 2026, follows a brief period of "Mildly Bearish" sentiment, with weekly MACD, moving averages, and KST indicators all flashing bearish signals. Immediate support rests at the 52-week low of ₹712.15, whilst resistance emerges at the 20-day moving average zone around ₹838.
Investment Thesis: Quality Franchise Undermined by Execution Concerns
SBI Cards maintains an "Excellent" quality grade based on its five-year sales growth of 15.08%, EBIT growth of 16.27%, and average ROE of 18.56%. The company benefits from strong institutional holdings of 28.00% and the backing of India's largest bank as its promoter. However, this quality franchise faces mounting execution challenges, reflected in the current "Flat" financial trend designation and deteriorating technical indicators.
The investment case rests on three pillars: the structural growth opportunity in India's underpenetrated credit card market, SBI Cards' market leadership position with extensive distribution through parent bank branches, and the company's demonstrated ability to scale operations profitably over the long term. However, near-term headwinds include margin compression, elevated leverage constraining growth optionality, intense competition from fintech players and rival banks, and regulatory uncertainty around unsecured lending practices.
✅ KEY STRENGTHS
- Market Leadership: Dominant position in India's credit card industry with extensive distribution network
- Strong Parentage: 68.58% ownership by State Bank of India provides strategic and operational advantages
- Quality Metrics: Average ROE of 18.56% demonstrates efficient capital deployment over long term
- Institutional Backing: 28.00% institutional holdings with mutual funds increasing stakes
- Growth Track Record: Five-year sales CAGR of 15.08% and EBIT CAGR of 16.27%
- Structural Opportunity: India's low credit card penetration offers multi-year growth runway
- Quarterly Profit Recovery: Q3 net profit of ₹556.64 crores marks highest quarterly performance
⚠️ KEY CONCERNS
- Margin Compression: Operating margin declined 805 bps YoY to 26.17%, reflecting structural pressures
- High Leverage: Debt-to-equity ratio of 3.33x limits financial flexibility and magnifies risks
- Expensive Valuation: P/E of 38.81x represents 76% premium to sector average of 22x
- ROE Deterioration: Latest ROE of 12.97% significantly below five-year average of 18.56%
- Technical Weakness: Bearish trend with stock below all major moving averages
- Persistent Underperformance: Negative alpha across all timeframes, lagging sector by 19.24% over one year
- Flat Financial Trend: Momentum stalled with inconsistent quarterly performance trajectory
Outlook: What Lies Ahead for India's Credit Card Leader
The outlook for SBI Cards hinges on management's ability to stabilise operating margins whilst maintaining growth momentum in an increasingly competitive landscape. The company must demonstrate that Q3's margin improvement of 159 basis points quarter-on-quarter represents the beginning of a sustained recovery rather than a temporary respite. Key monitoring points include quarterly asset quality disclosures, particularly gross and net NPA trends, given elevated household leverage and rising delinquencies across the unsecured lending sector.
POSITIVE CATALYSTS
- Margin Stabilisation: Sustained operating margins above 27% would restore investor confidence
- Asset Quality Resilience: Stable or improving NPA ratios despite industry headwinds
- Market Share Gains: Capturing disproportionate share of industry growth through SBI distribution
- Digital Innovation: Technology investments yielding customer acquisition and retention benefits
- Regulatory Clarity: Clear guidelines on unsecured lending removing uncertainty overhang
RED FLAGS
- Further Margin Erosion: Operating margins slipping below 25% would signal structural challenges
- Asset Quality Deterioration: Rising NPAs or provisioning expenses impacting profitability
- Market Share Loss: Intensifying competition from fintech players and rival banks
- Funding Cost Pressure: Rising borrowing costs compressing net interest margins
- Regulatory Tightening: Restrictions on unsecured lending constraining growth
The company's ability to navigate these challenges whilst justifying its premium valuation will determine whether the current "Sell" rating proves prescient or overly pessimistic. For investors, the critical question centres on whether SBI Cards' quality franchise and long-term growth potential outweigh near-term execution risks and valuation concerns. The answer appears increasingly uncertain given the confluence of margin pressure, elevated leverage, and persistent underperformance.
The Verdict: Premium Valuation Unjustified Amidst Execution Uncertainties
Score: 44/100
For Fresh Investors: Avoid initiating positions at current levels. The stock trades at unjustifiable premium valuations (38.81x P/E, 5.03x P/BV) whilst facing margin compression, elevated leverage, and flat financial momentum. Better entry opportunities likely emerge below ₹720 if margins stabilise and asset quality remains resilient.
For Existing Holders: Consider reducing exposure on any pullback rallies towards ₹800-₹820 levels. The combination of expensive valuation, deteriorating ROE, bearish technical trend, and persistent underperformance suggests limited upside potential. Maintain holdings only if conviction in long-term franchise value outweighs near-term execution concerns and valuation risks.
Fair Value Estimate: ₹680-₹720 (12-17% downside from current levels)
Rationale: Despite excellent quality credentials and market leadership, SBI Cards' investment case is undermined by unsustainable valuation multiples, margin compression threatening profitability, and technical weakness signalling continued downside risk. The stock requires meaningful de-rating or substantial operational improvement before offering attractive risk-reward.
Note: ROCE = (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ 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. Past performance is not indicative of future results. The views expressed are those of the author and do not necessarily reflect the official policy or position of any financial institution.
