SBI Cards and Payment Services is entering a decisive recovery phase as credit costs ease and spending momentum strengthens. Anand Rathi Research has reiterated a BUY rating with a target price of Rs.992, citing a sharp improvement in asset quality, stabilizing margins, and a visible turnaround in profitability. While receivables growth remains muted in the near term, strong corporate spending, disciplined underwriting, and falling delinquencies are reshaping the earnings trajectory. With a projected 28% PAT CAGR over FY25–FY28, SBI Cards appears positioned at an inflection point that could redefine investor expectations over the medium term.

BUY Call Anchored by Improving Credit Fundamentals

Anand Rathi Share and Stock Brokers Ltd. has maintained its BUY recommendation on SBI Cards and Payment Services, underscoring a material improvement in credit costs and a stabilizing operating environment. The brokerage has set a target price of Rs.992, implying meaningful upside from the current market price of around Rs.782. At this valuation, the stock is expected to trade at 4.2x FY28e book value, aligned with a projected return on assets of 4.5%, signaling a structurally stronger earnings profile.

Spending Momentum Strengthens Despite Muted Receivables Growth

Consumer and corporate spending trends are turning supportive. During Q3FY26, SBI Cards reported a robust 33% year-on-year growth in card spends, supported largely by a sharp rise in corporate transactions. Sequentially, spending growth remained healthy at 7%. However, gross receivables growth stayed modest at 4.5% y/y, reflecting management’s cautious stance on balance-sheet expansion amid earlier asset-quality concerns.

Management has guided for a quarterly acquisition run-rate of 0.9–1.0 million cards, with a clear emphasis on improving the quality of sourcing rather than pursuing aggressive volume-led growth.

Shift in Spend Mix Alters Revenue Dynamics

Corporate spends have emerged as a critical earnings lever. The share of corporate spending surged to 19.8% of total spends, up sharply from just 6.2% a year ago. While this shift has temporarily pressured margins due to higher operating costs, it has also improved transaction visibility and diversified revenue streams. Management expects this mix to stabilize at current levels, offering greater predictability in fee-based income over the medium term.

Credit Costs Enter a Downward Trajectory

Asset quality trends are showing sustained improvement. Credit costs declined sharply by 54 basis points quarter-on-quarter to 8.3%, driven by lower slippages and improving performance of recent vintages. Gross Stage-2 assets improved to 3.9%, while Stage-3 asset levels also trended lower, reinforcing confidence in underwriting standards.

Anand Rathi has factored in a further 50 basis-point reduction in credit costs for FY26, a key driver behind its optimistic profitability outlook.

Operating Costs Likely to Remain Range-Bound

Cost discipline remains central to the investment thesis. The cost-to-income ratio stood at 56.8% in Q3FY26, largely reflecting elevated corporate-related operating expenses. Management expects this ratio to remain within the 55–57% range through FY26, before stabilizing further as acquisition momentum improves in FY27.

Despite near-term cost pressures, operating leverage is expected to re-emerge as revenue growth accelerates faster than expenses.

Profitability Rebound Gathers Pace

Bottom-line recovery is now clearly visible. SBI Cards posted a 45% year-on-year jump in PAT during Q3FY26, reflecting the combined impact of lower provisioning, stable margins, and controlled expenses. Anand Rathi projects PAT to rise from Rs.19.2 billion in FY25 to Rs.40.2 billion by FY28, translating into a 28% compound annual growth rate.

Return ratios are also expected to recover meaningfully, with RoA rising to 4.5% and RoE approaching 19.5% by FY28.

Valuation Supports Upside Despite Past Volatility

Current valuations remain attractive relative to long-term fundamentals. At the target price of Rs.992, SBI Cards would trade at approximately 23x FY28e earnings and 4.2x FY28e book value, based on Anand Rathi’s residual income valuation framework. These multiples appear justified given the improving credit environment, rising profitability, and capital adequacy ratio of over 23%, providing sufficient headroom for growth.

Key Financial Snapshot

Risks to Monitor

Key downside risks remain manageable but relevant. A prolonged status quo on MDR fees could limit revenue upside, while any unexpected deterioration in credit costs may delay the recovery cycle. Additionally, slower-than-expected revival in card acquisitions could cap operating leverage.

Investment View: Inflection Point Justifies BUY

SBI Cards is transitioning from stabilization to recovery. With credit costs peaking, asset quality improving, and spending momentum returning, the company is well placed to deliver strong earnings growth over the next three years. Anand Rathi’s BUY call reflects confidence that the worst of the credit cycle is behind the company, making current levels an attractive entry point for medium-term investors.