Brokerages remained divided on SBI Cards and Payment Services after its second-quarter results for FY27, with JPMorgan maintaining an Underweight rating and cutting its target price, while Kotak Securities retained its bullish stance, citing improving credit costs and the potential for stronger return ratios.
JPMorgan lowered its target price on SBI Cards to Rs 505 from Rs 588, citing muted loan growth, potential net interest margin (NIM) pressure and the likelihood of credit costs bottoming out. The brokerage maintained its Underweight rating, flagging limited scope for further earnings support from declining provisions.
SBI Cards reported a profit after tax of Rs 778 crore for the quarter, 4% below JPMorgan's estimates, while pre-provision operating profit came in 3% below expectations. Net interest income was broadly in line with estimates at Rs 1,720 crore.
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Asset quality continued to improve, with credit costs declining 97 basis points sequentially to 5.62%, a 14-quarter low. However, JPMorgan cautioned that rising funding costs could weigh on margins, while subdued interest-earning asset growth and higher operating expenses could constrain profitability. The brokerage also highlighted limited valuation support relative to peers with stronger growth prospects.
The brokerage firm believes credit costs are likely to remain sticky and elevated despite the improving trend in early delinquencies — it factors in 5.8% in FY27. Growth is likely to be challenged by a moderating trend in retail credit card spending, which has historically provided a strong leading indicator. In addition, tighter underwriting is likely to lead to a deterioration in the asset mix, with a decline in revolver share, which is likely to impact NIMs.
In contrast, Kotak Securities maintained its Buy rating on SBI Cards with a target price of Rs 900. It highlighted the improvement in credit costs and lower provisions as key drivers of earnings growth, while acknowledging that revenue growth remained weak. Kotak believes lower risk intensity could support stronger through-the-cycle returns, adding that the potential for an improved return on equity trajectory is not yet reflected in the stock price.
Nuvama Institutional Equities raised its FY27 earnings estimates to factor in the H1 beat. However, it cautioned that rising margin and asset-quality headwinds alongside lower RoE warrant a valuation moderation.
Nuvama retained ‘Hold' call on SBI Cards shares but slashed the target price to Rs 625 from Rs 660 earlier.
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