SBI Cards: Credit costs to improve

● Management strengthens risk assessment measures

WE UPGRADE SBI CARDS to 'BUY' (from 'REDUCE') as the credit cost outlook shows signs of improvement. Over the past two years, the company's earnings consistently fell short of consensus estimates due to a persistent rise in credit costs and limited visibility of a turnaround. However, we believe credit costs peaked in Q2FY25, are likely to remain stable in Q3FY25E, and will begin improving in Q4FY25E. While credit card delinquencies are rising for other players, SBI Cards is better positioned due to its earlier entry into the weak credit cycle and strengthened risk assessment frameworks. We raise our TP to ₹850. Additionally, potential RBI rate cuts in the coming quarters could act as a further tailwind for SBI Cards.