SBI Cards : Stock Analysis November 2023

SBI Cards and Payments Services decline 4% following report promoter stake  sale

Based on the financial data and information provided on SBI Cards, here is an overview of the company:

Positive Factors:

  • High operating profit margin (OPM) of 31.7% indicates efficient operations
  • Low debt to equity ratio of 3.08 shows relatively low financial leverage
  • Growing cash and cash equivalents over the years to Rs. 1,478 crores
  • Promoter holding is high and steady at around 69%
  • No pledged shares by promoters
  • EPS has grown from Rs. 1.74 in 2013 to Rs. 24.33 in 2023
  • Dividend yield of 0.34%
  • Industry PE of 22.8 indicates positive industry outlook

Cautionary Factors:

  • Stock price is trading at 6.32 times its book value indicating potential overvaluation
  • Difference between CMP and 50 DMA is high, stock seems overvalued compared to historical trend
  • Capitalization of interest cost could be inflating profits

Long Term Outlook:

Given its high margins, low leverage and industry growth trends, SBI Cards seems well positioned for long term growth. However, current valuations seem stretched. Investors could wait for more reasonable valuations before investing for the long run.

Short Term Outlook:

In the near term, the high valuation multiples could lead to price correction and consolidation. However, continued healthy business performance might limit downside. Investors could avoid fresh exposure at current levels and wait for better entry point. Existing investors could continue holding or book partial profits.

Overall the business fundamentals seem strong but valuations are a concern in both short and long term. Investors need to track the trend in margins, asset quality and valuations going forward.

Positive Factors

  • SBI Cards has delivered a healthy operating profit margin (OPM) of 31.7% in 2023, indicating operationally efficient business model. High margins allow better absorption of fixed costs and generates higher profitability.
  • The company has also maintained a relatively low debt to equity ratio of 3.08 as of Mar 2023. This shows SBI Cards has not excessively leveraged its balance sheet to fund growth. Conservatively managing leverage reduces riskiness of the business model.
  • Further, SBI Cards has grown its cash and cash equivalents significantly over the years from Rs. 231 crores in 2013 to Rs. 1,478 crores as of Sep 2023. Robust cash balances provide financial flexibility to tap growth opportunities and also act as a buffer during downturns.
  • Promoters, mainly SBI, hold 68.94% stake as of Sep 2023 which instills confidence that the promoters are invested in the company’s growth story. Also, promoters have not pledged any shares which is another positive.
  • SBI Cards has also delivered strong growth in earnings, with EPS growing from Rs. 1.74 in 2013 to Rs. 24.33 in 2023. Rising earnings signal that the company is enhancing shareholder value by growing its profits year-on-year.
  • Lastly, the company offers stable dividend payout totaling 0.34% dividend yield to shareholders. And the industry Price-to-Earnings ratio stands at 22.8x indicating that the industry enjoys positive growth outlook.

Cautionary Factors

  • Despite the positives, the current stock price seems to have run up too far ahead of the fundamentals. SBI Cards is trading at price-to-book value of 6.32 times as of Nov 2023, which signals potential overvaluation given its five year average P/B ratio stands at 8.05 times.
  • Also, SBI Cards’ current market price of Rs. 735 is higher than its 50-day moving average of Rs. 694 and 200-day moving average of Rs. 718. This shows that the stock price has surged ahead of its historical trend. Typically such divergences get corrected over 3-6 month period, signaling potential for near term price consolidation or minor correction.
  • Further, the interest costs as a percentage of operating profits is on the higher side at over 20% in recent years for SBI Cards. This raises concerns that the company might be capitalizing a portion of its interest costs to overstate the earning capacity of the business. Investors need to monitor if such accounting treatment is inflating the profits.

Long Term Outlook

  • SBI Cards seems well positioned for long-term growth on back of its operationally efficient model indicated by high margins, conservative leverage position and significant cash balances. These factors lower the risk profile of the business.
  • Rising household incomes and lower penetration of credit cards in India compared to global averages provides long growth runway for the company. Further, the favorable industry outlook is underscored by Price-to-Earnings ratio of 22.8x for the sector.
  • Backed by SBI’s extensive network, SBI Cards can continue gaining market share in India’s credit card industry. The company has already grown its cardholder base from 8.1 lakhs in FY17 to over 1.8 crores as of Nov’22. Market leadership will enable SBI Cards to achieve economies of scale and deliver healthy profitability.
  • However, valuation seems to be a concern for long-term investors. While earlier the stock traded between 2.5-5 times price-to-book ratios which offered a margin of safety, the current valuation multiples leave little room for disappointment. Any slower than anticipated growth could lead to de-rating of valuation multiples.
  • So in summary, SBI Cards has a healthy business model and long runway for growth. But investors could wait for more reasonable valuations before investing for long term. Once valuations cool off to 4-5 times price-to-book ranges, the stock can be evaluated for long term exposure.

Short Term Outlook

  • In the near term of 3-6 months, the high valuation multiples of over 6 times price-to-book could lead to price correction and consolidation towards its historical averages.
  • Typically high growth companies trade at premium valuations. But as growth slows down either company specific or due to market wide factors, the valuations tend to normalize lower. This phenomenon could impact SBI Cards in the coming months.
  • However, SBI Cards has posted steady growth so far without any negative surprises. This might provide valuation support from excessive corrections. But market dynamics and institutional flows will likely keep the stock volatile in the near term.
  • Overall investors could avoid taking any fresh positions around current prices from short term perspective. The risk-reward is not favorable for new investments at prevailing valuations.
  • However existing investors in SBI Cards could continue holding their positions as the business fundamentals remain intact. Though some amount of volatility in stock price cannot be ruled out. Investors should focus on long term business outlook rather than short term stock price movements.
  • Existing investors could also consider booking partial profits on any eventual rallies to ride out near term volatility in a risk-calibrated manner. Around 15-20% profit booking could be explored on strong up moves.

In summary, while business continues growing at healthy pace, stock price might take a breather and consolidate until underlying fundamentals catch up with the stretched valuations.


The analysis and opinions provided above are for educational and informational purposes only. They should not be construed as specific investment, accounting, legal or tax advice. Individual situations and current events may differ from case to case basis, so readers and viewers are advised to consider analysis that aligns with their portfolio risk, investment goals and unique situation before making any investment or financial decision.

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