Macquarie upgrades SBI Card to 'Outperform'; share price soars 5% on BSE

SBI Card share price: SBI Card stock moved up by 6.1 per cent in the intraday trade to hit a 52-week high of Rs 866.85 on the BSE. This was the stock's highest level in 18 months

SBI Cards Macquarie upgrade: SBI Cards and Payment (SBI Card) share price surged in stock markets trade today, February 13, 2025. The stock moved up by 6.1 per cent in the intraday trade to hit a 52-week high of Rs 866.85 on the BSE. This was also the stock's highest level in 18 months.

 

SBI Card stock settled at Rs 859.45 per share (up 5.23 per cent). By comparison, the BSE Sensex ended 32 points or 0.04 per cent lower.

 

SBI Card share price bucked the weak stock markets trend after global brokerage Macquarie upgraded the stock from 'Neutral' to 'Outperform'.

 

 

The brokerage has also raised its share price target on the stock to Rs 1,000 from Rs 735 on the back of certain industry-wide factors that are driving the optimism.

 

First, Macquarie analysts said flow rates into overdue buckets for credit cards are plateauing to some extent.

 

"While we can't predict when it will come down meaningfully, this is the first comfort factor,” the brokerage said in its February 12 report.

 

Secondly, vintage delinquencies in credit cards, it said, has been on a downward trajectory, indicating incrementally better portfolio selection, as SBI Cards began providing incremental credit to borrowers with better scores over the past 12 months.

 

That apart, falling interest rates, easing liquidity, income tax cuts, and Reserve Bank of India (RBI) Governor already satisfied with moderation of unsecured loans are some of the additional drivers for a company like SBI Cards, which is wholesale funded and has 100 per cent unsecured consumption loan book.

 

"We increase our SBI card share price target by 36 per cent from Rs 735 to Rs 1,000. We reduce our sustainable credit costs, resulting in an increase in sustainable return on asset (RoA) by 30 basis points (bp) to 4.5 per cent. We reduce cost of equity by 100bps to 13.5 per cent and increase target price-to-book value (P/BV) valuation multiple from 3.4x to 4.8x," Macquarie analysts said. 

SBI Cards and Payment Services is a pure-play on the credit card business, and is promoted by State Bank of India (SBI). It is the second-largest issuer of credit cards in India with an 18 per cent market share in terms of number of cards.

 

SBI Card heavily relies on the customer base of SBI to cross sell cards and more than 70 per cent of its customers come from non-Tier-1 cities in India and under the age of 45.

 

According to Macquarie, fall in SBI Card slippages and credit costs from Q4FY25 onwards, along with increase in margins due to falling cost of funds may aid the stock’s re-rating.

 

Earlier, in January 2025, UBS had upgraded SBI Card share price to ‘Neutral’ from ‘Sell’ amid signs of stabilisation in delinquencies and improvement in incremental underwriting.

 

"Revolver mix (as a percentage of total loans which do not make full payment on due date) has been lower at around 23 per cent at present, and we expect a gradual increase to 25 per cent by FY27, which will aid margins. Moreover, declining interest rates and new NPL formation would also be margin supportive. We, thus, expect NIMs to increase to 11.8 per cent by FY27E vs 11.2 per cent at present. We expect new card additions to accelerate in FY26, which would likely support fee income,” the brokerage said.

 

The brokerage increased its share price target on the stock to Rs 800 from Rs 600 on expectation of RoA/RoE improvements. UBS expects credit costs to remain elevated over H2FY25, but decline to 7.3 per cent in FY26 and 7.1 per cent in FY27, as against expectations of 8.4 per cent credit cost in FY25.

 

Macquarie, on the other hand, estimates credit costs for FY26 and FY27 at 7.6 per cent. This, however, is higher than the 6.6 per cent seen pre-Covid, 6.8 per cent seen during recovery post-Covid and 4.2 per cent seen during the bull phase of FY13-16. The brokerage has also cut its earnings by 13-15 per cent for FY25-27 driven by slower loan growth, net interest income, and fees.