SBI Cards & Payment Services Ltd Upgraded to Hold Amid Mixed Fundamentals and Technical Signals

Quality Assessment: Strong Fundamentals Amidst Flat Quarterly Performance

SBI Cards, operating within the Non-Banking Financial Company (NBFC) sector, continues to demonstrate robust long-term fundamentals despite a flat financial performance in the third quarter of FY25-26. The company maintains a healthy average Return on Equity (ROE) of 18.56%, signalling efficient capital utilisation over time. Operating profit growth has been steady, with an annualised increase of 20.64%, underscoring the firm’s ability to expand its core business profitably.

Institutional investors hold a significant 28% stake in SBI Cards, indicating confidence from well-resourced market participants who typically conduct thorough fundamental analysis. However, the company’s debt-equity ratio remains elevated at 3.33 times as of the half-year mark, which is a point of caution for risk-averse investors. This leverage level, while common in NBFCs, requires monitoring given the sector’s sensitivity to credit cycles.

Despite these positives, the company’s recent quarterly results were largely flat, reflecting challenges in near-term growth momentum. This mixed quality profile justifies the Hold rating, balancing strong fundamentals against short-term operational stagnation.

Valuation: Elevated Premium Reflecting Market Expectations

The valuation grade for SBI Cards has been downgraded from Expensive to Very Expensive, signalling that the stock currently trades at a significant premium relative to its earnings and book value. The company’s price-to-earnings (PE) ratio stands at 35.76, which is high compared to many peers in the NBFC sector. Similarly, the price-to-book (P/B) ratio is 5.06, indicating investors are paying over five times the company’s net asset value.

Enterprise value to EBITDA (EV/EBITDA) is also elevated at 22.54, reinforcing the notion of stretched valuations. The PEG ratio, which adjusts the PE ratio for earnings growth, is notably high at 15.70, suggesting that the stock’s price growth expectations are not fully supported by its earnings trajectory. Dividend yield remains modest at 0.32%, which may not be attractive for income-focused investors.

Return on Capital Employed (ROCE) and ROE are 8.47% and 14.14% respectively, reflecting decent profitability but not sufficiently high to justify the current valuation premium. This valuation profile implies that while the market anticipates future growth, the risk of correction remains if earnings do not accelerate as expected.

Financial Trend: Mixed Returns and Underperformance Against Benchmarks

Examining the stock’s recent returns reveals a challenging environment for SBI Cards. Over the past year, the stock has declined by 7.38%, underperforming the Sensex, which gained 9.35% over the same period. Year-to-date returns are also negative at -8.78%, compared to the Sensex’s -2.82%. Even over a three-year horizon, the stock’s 3.95% return pales in comparison to the Sensex’s robust 36.45% gain.

Operating profit growth remains positive but modest, with a 2.3% increase over the last year. This slow growth, combined with negative stock returns, highlights the disconnect between the company’s fundamentals and market performance. The stock’s 52-week trading range between ₹725.55 and ₹1,023.05 further illustrates volatility and investor uncertainty.

These financial trends contribute to the Hold rating, as the company’s long-term growth potential is tempered by recent underperformance and valuation concerns.

Technical Analysis: Signs of Stabilisation Amid Mixed Indicators

The technical grade for SBI Cards has improved from Bearish to Mildly Bearish, reflecting a subtle shift in market sentiment. Weekly Moving Average Convergence Divergence (MACD) remains bearish, but the monthly MACD has softened to mildly bearish, indicating a potential easing of downward momentum. The Relative Strength Index (RSI) on a weekly basis is bullish, suggesting short-term buying interest, although the monthly RSI shows no clear signal.

Bollinger Bands on both weekly and monthly charts remain mildly bearish, signalling continued price pressure but with reduced volatility. Daily moving averages are still bearish, which may limit near-term upside. The Know Sure Thing (KST) indicator presents a mixed picture: bearish on the weekly timeframe but bullish monthly, hinting at possible longer-term recovery.

Other technical signals such as Dow Theory and On-Balance Volume (OBV) also show divergence, with weekly indicators mildly bullish and monthly indicators mildly bearish. This blend of signals suggests that while the stock is not yet in a confirmed uptrend, it is stabilising and could be poised for a gradual recovery if positive catalysts emerge.

Today, the stock traded between ₹781.00 and ₹800.40, closing at ₹786.00, down 1.42% from the previous close of ₹797.30. This price action reflects cautious investor sentiment amid the mixed technical backdrop.

Conclusion: Hold Rating Reflects Balanced View Amidst Contrasting Factors

The upgrade of SBI Cards & Payment Services Ltd’s investment rating from Sell to Hold is a reflection of a complex interplay between improving technical signals and persistent valuation and financial challenges. While the company’s strong long-term fundamentals, including solid ROE and operating profit growth, provide a foundation for optimism, the flat recent quarterly results and elevated valuation metrics temper enthusiasm.

Technically, the stock shows signs of stabilisation, with some weekly indicators turning bullish, but monthly signals remain cautious. The stock’s underperformance relative to the Sensex over multiple timeframes further supports a conservative stance. Investors should weigh the company’s premium valuation and leverage levels against its growth prospects and institutional backing.

For those considering exposure to SBI Cards, the Hold rating suggests maintaining current positions while monitoring for clearer signs of earnings acceleration or technical breakout. The stock’s premium pricing demands strong future performance to justify current market expectations.

Limited Period Only. Start at Rs. 9,999 - Get MojoOne for 1 Year + 3 Months FREE (60% Off) Get 71% Off →