SBI Cards & Payment Services Downgraded to Sell Amid Technical and Valuation Concerns

Quality Assessment: Strong Fundamentals but Recent Flat Performance

SBI Cards continues to demonstrate robust long-term fundamental strength, with an average Return on Equity (ROE) of 18.56%, signalling efficient capital utilisation over time. The company has also maintained healthy growth in operating profit, expanding at an annual rate of 16.27%, underscoring its ability to generate earnings growth in the competitive NBFC sector.

However, the recent quarterly results for Q2 FY25-26 have been underwhelming. Profit Before Tax (PBT) excluding other income stood at ₹424.27 crores, marking a decline of 12.1% compared to the previous four-quarter average. Operating profit before depreciation, interest, and taxes (PBDIT) was the lowest in recent quarters at ₹1,219.35 crores. The operating profit to net sales ratio also dropped to a low of 24.58%, indicating margin pressures.

These flat financial results have raised concerns about the company’s near-term earnings momentum despite its solid historical performance.

Valuation: Expensive Premium Amid Profit Decline

The stock is currently trading at ₹811.75, down 3.13% on the day, and well below its 52-week high of ₹1,023.05 but above the 52-week low of ₹712.15. SBI Cards commands a high valuation with a Price to Book (P/B) ratio of 5.2, which is considered very expensive relative to its peers in the NBFC sector. This premium valuation is difficult to justify given the recent 13.2% decline in profits over the past year.

While the stock has delivered a 6.71% return over the last year, this modest gain is overshadowed by the Sensex’s 6.63% return and the sector’s stronger long-term performance. Over five years, SBI Cards has underperformed significantly, with a negative return of 18.71% compared to the Sensex’s 65.05% gain.

Financial Trend: Flat Quarterly Performance Clouds Growth Prospects

The financial trend for SBI Cards has been largely flat in the recent quarter, with key profitability metrics showing deterioration. The PBT excluding other income fell by 12.1%, and operating profit margins contracted to their lowest levels in recent quarters. This stagnation contrasts with the company’s historically strong growth trajectory and raises questions about its ability to sustain earnings momentum in the near term.

Institutional investors hold a significant 27.86% stake in the company, reflecting confidence in its long-term prospects. However, the recent financial stagnation and profit decline have likely contributed to a more cautious stance among market participants.

Technical Analysis: Shift to Bearish Signals Triggers Downgrade

The most significant factor behind the downgrade to Sell is the deterioration in technical indicators. The technical grade shifted from mildly bearish to bearish, signalling increased downside risk in the stock’s price action.

Key technical metrics include:

• MACD: Weekly readings are bearish, while monthly remain mildly bearish, indicating weakening momentum.


• RSI: Weekly RSI is bullish, but monthly RSI shows no clear signal, suggesting mixed momentum.


• Bollinger Bands: Weekly bands are bearish, with monthly bands moving sideways, reflecting volatility and lack of clear trend.


• Moving Averages: Daily averages are bearish, reinforcing short-term downtrend.


• KST Indicator: Weekly KST is bearish, though monthly KST remains bullish, highlighting conflicting signals across timeframes.


• Dow Theory: Both weekly and monthly trends are mildly bearish, confirming a cautious outlook.


• On-Balance Volume (OBV): Weekly and monthly OBV are mildly bearish, indicating selling pressure.

These technical signals collectively suggest that the stock is under pressure and may face further downside in the near term, justifying the downgrade from Hold to Sell.

Comparative Performance: Underperformance Against Sensex and Sector

When compared to the broader market, SBI Cards has underperformed over multiple time horizons. The stock’s one-week return of -5.36% and one-month return of -6.82% lag the Sensex’s respective returns of -1.73% and -3.24%. Year-to-date, the stock is down 5.8%, compared to the Sensex’s 3.57% decline.

Longer-term comparisons also highlight underperformance. Over three years, SBI Cards has returned 7.96%, significantly below the Sensex’s 35.56%. The five-year return is negative at -18.71%, while the Sensex has surged 65.05% over the same period.

This relative weakness further supports a cautious stance on the stock.

Outlook and Investor Considerations

While SBI Cards & Payment Services Ltd boasts strong institutional backing and a solid long-term fundamental base, the recent flat financial results combined with expensive valuation and bearish technical signals have led to a downgrade in its investment rating to Sell. Investors should be cautious given the stock’s underperformance relative to the Sensex and the NBFC sector, as well as the mixed technical indicators that suggest potential further downside.

Those holding the stock may consider reassessing their positions, especially in light of the stock’s premium valuation and recent profit declines. Conversely, investors seeking exposure to the NBFC sector might explore alternative companies with more favourable technical and financial trends.

Overall, the downgrade reflects a prudent response to evolving market conditions and company-specific challenges, emphasising the importance of integrating multiple analytical parameters in investment decisions.

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