CLSA has upgraded SBI Cards to Hold from Underperform, citing an improving asset quality outlook while cautioning about fresh pressures on operating profitability that could limit upside potential. The brokerage has set a revised target price of ₹820, with the stock trading at approximately 20x FY28 earnings—levels CLSA considers fair given the balance between improving asset quality and structural profitability headwinds.

The upgrade comes after SBI Cards experienced 8-9% underperformance over the past three months, which CLSA believes has reduced downside risks despite earnings downgrades across multiple financial metrics.

Asset Quality Improvement Offset by Profitability Pressures

CLSA expects SBI Cards to witness gradual moderation in credit costs over the coming quarters as asset quality stabilizes. However, the brokerage warns that benefits from lower provisions are increasingly being offset by rising pressure on pre-provision operating profit (PPOP).

The firm emphasized that expected asset quality improvements are already reflected in consensus estimates, with limited scope for positive surprises on this front.

Growth Slowdown and Margin Headwinds

Industry-wide credit card spending growth has decelerated significantly, falling from the high-20% range in FY24 to low-teens levels. CLSA has accordingly reduced its loan growth assumptions for SBI Cards:

The brokerage does not anticipate a return to mid-teens growth, noting that loan growth remains sluggish across the sector, limiting operating leverage opportunities. While growth could recover modestly from a low base, structural challenges persist.

Net interest margins are expected to face pressure starting from the fourth quarter of FY26, driven by lower yields. Unless the Reserve Bank of India implements further rate cuts, margin compression is likely to continue.

Fee Income Under Pressure

Beyond margin concerns, fee income is emerging as another area of challenge for SBI Cards. CLSA expects several factors to weigh on fee income:

• Lower rental spending impacting transaction-based fees
• Reduced instance-based fees, particularly late payment charges
• Pressure on late fees due to better asset quality and improved customer underwriting

Late fees, which constitute a significant portion of total fees, are already experiencing pressure. To partially mitigate this impact, CLSA expects SBI Cards to reduce customer rewards, though this measure will only partially offset the decline.

Revised Financial Estimates

Based on these factors, CLSA has made significant adjustments to its financial projections:

Despite these downgrades, the brokerage maintains that the ₹820 target price reflects fair valuation given the current operating environment and mixed outlook for the credit card sector.

Macquarie has announced a significant rating revision for SBI Cards and Payment Services Ltd, downgrading the stock from Neutral to Underperform. The global financial services firm has simultaneously reduced its target price to ₹750.00.

Rating and Target Price Changes

The brokerage firm's latest research note reflects a more cautious stance on the credit card company's prospects. The following table summarizes the key changes:

Investment Outlook

The downgrade to Underperform indicates that Macquarie expects SBI Cards to underperform relative to the broader market or its sector peers. This rating typically suggests that investors may want to consider reducing their exposure to the stock or avoiding new positions.

The revised target price of ₹750.00 provides Macquarie's assessment of the stock's fair value based on their current analysis and market conditions. This price target serves as a benchmark for potential investors and existing shareholders to evaluate their investment decisions.