SBI Cards and Payment Services Ltd. has received a bullish upgrade from two leading brokerages, Nomura and Nuvama, which led to a 1.5 percent increase in the share price on January 6 at Rs 734.05.
Both firms have raised their price targets for the stock, citing improving asset quality and the potential for interest rate cuts.
Nomura has upgraded SBI Cards to a 'Buy' with a revised target price of Rs 825 per share, implying a 14 percent upside from Friday's closing. The brokerage believes that concerns regarding asset quality are likely to ease in the near term.
There are several reasons to this. The share of credit card debt originating from metro areas has been steadily increasing, while leverage and limit levels for non-metro customers have been declining. Concurrently, SBI Cards has witnessed a significant increase in new customer acquisitions from the top eight metro cities.
In November 2024, the company had experienced a substantial rise in net card additions, reaching the highest level since December 2023. As per the brokerage firms, these trends suggest that asset quality issues should stabilise in the coming quarters, leading to improved returns for SBI Cards in FY26. Nomura expects credit costs to gradually decline from 9.1 percent in FY25 to 7 percent in FY27.
Nuvama also upgraded SBI Cards to a 'Buy' and raised its price target to Rs 850 per share. The brokerage believes that credit costs likely peaked in Q2FY25 and are expected to improve sequentially. While other players grapple with rising delinquencies, Nuvama expects SBI Cards' credit cost trajectory to improve due to proactive risk management measures implemented earlier.
Potential rate cuts by the Reserve Bank of India (RBI) in the coming quarters are also expected to further enhance SBI Cards' performance, the brokerages believe.
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