SBI Cards & Payment Services Ltd.'s stock got a 'buy' upgrade from Nuvama Institutional Equities and Nomura, due to improving credit cost outlook and benefit from potential interest rate cuts. The stock previously had a 'reduce' rating.
Over the past two years, the company has consistently missed earnings expectations due to rising credit costs and limited signs of a turnaround. But credit costs peaked in the second quarter of fiscal 2025 and are expected to remain stable in the third quarter, Nuvama said. It should start improving in the January-March period.
"While credit card delinquencies are rising for other players, we expect SBI Cards’ credit cost trajectory to improve because its weak credit cycle set in earlier than peers, and now it has guardrails for better risk assessment," the brokerage said.
Write-off accounts for over 90% of gross credit cost and grew 14% sequentially in July-September period, while provisions decreased 19%. Total credit cost increased 10% sequentially to 9% in the second quarter.
Nuvama expects credit cost to decrease by 25–30 basis points in the March quarter and 90–100 basis point from the year end levels in fiscal 2026 as write-offs ease. At 9% in the September quarter, credit cost is higher than peers but, while peers are now seeing high delinquencies in credit cards, SBI Cards shall likely start seeing an improving trend, the brokerage said.
Moreover, potential interest rate cuts by the Reserve Bank of India over the coming quarters shall be an added positive for SBI Cards, it said.
Nuvama increased its target price on the SBI Cards stock to Rs 850 from Rs 620 per share. This implies a potential upside of 17.5% over Friday's close of Rs 723.
Nomura, too, raised its rating to 'buy' with a target price of Rs 825, seeing a 17.4% return potential over Thursday's close.
The brokerage cited asset quality improvement and potential rate cut-driven re-rating likely in near term.
"SBI Cards has slowed down growth to control asset quality issues. However, card addition has been picking up in the past two months, which should lead to a pick up in loan growth in FY26," the note said, further pegging loan growth estimate of 15% this year and 20% next year.
The stock has fallen 5.8% in the last 12 months.
Of the 27 analysts tracking SBI Cards, seven have a 'buy' rating, nine suggest 'hold' and 11 recommend 'sell', according to Bloomberg data. The average of 12-month price target of Rs 705.88 implies a potential downside of 2.4%.
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