Brokerage firm Morgan Stanley has downgrades SBI Cards to an “underweight” and cut its price target to ₹710.
It said that credit costs estimates were a miss due to higher stressed asset creation and some rise in the ECL coverage.The brokerage highlighted earlier that the market estimates for credit costs and earnings were too optimistic, adding that it expects a shifts in sentiments with sharp cuts to forecasts.
Bernstein has an “underperform” rating on the stock with a price target of ₹690, saying that elevated credit costs have become one of SBI Cards’ most consistent metric.
Having said that, if the last four to five quarters are anything to go by, the market reaction may be fleeting, with a brief dip, renewed hopes of a bottom, and another rally, in hopes that next quarter will somehow offer an alternate reality, the brokerage said.Macquarie remains “neutral” on the stock with a price target of ₹1,040. It said that the decline in funding costs could provide some margin cushion for the current financial year.
The brokerage also finds SBI Cards’ valuations at 4.3 times financial year 2027 price-to-book to be “inexpensive” for a Return on Asset (RoA) trajectory of 3.5% and sub-par growth.
For the June quarter, SBI Cards reported a 60 basis points increase in its credit costs to 9.6%, which is the highest in the last 16 quarters.
During the December quarter results, when credit costs had risen to 9.4%, the management of SBI Cards had highlighted that they are at an inflection point when it comes to credit costs and they will start moderating soon.
11 analysts have a “hold” and “sell” rating each on SBI Cards, while seven of them have a “buy” recommendation.
Shares of SBI Cards are trading 3.5% lower in early trade at ₹857.1. The stock is cooling off from its 52-week high of ₹1,027.
