On Friday, Goldman Sachs (NYSE:GS) revised its outlook on SBI Cards and Payment Services (SBICARD:IN), lifting the stock from a Sell to a Buy rating. The financial institution also increased the price target to INR913.00, a notable rise from the previous INR652.00.
Goldman Sachs' decision is based on a positive shift in the company's projected profit before provisions and return on assets (PPOP-ROA), which are now expected to stabilize. This comes as the industry embarks on a phase of cost rationalization, anticipated to favorably affect the cost-income ratio, a critical factor in the firm's profitability.
The upgrade is underpinned by three key expectations: SBI Cards is likely to see a peak in credit costs within the next two to three quarters, having acknowledged existing challenges and improved the quality of its credit sourcing; an improving cost-to-income ratio due to ongoing industry consolidation; and a significant valuation correction from a 36X 12-month forward P/E in FY22 to 24X 12-month forward P/E at present, reflecting past concerns over asset quality and profitability.
Goldman Sachs' analyst pointed out that SBI Cards, by addressing issues proactively and enhancing credit sourcing standards, is positioned to benefit from the current industry landscape. The analyst also highlighted the positive impact of industry consolidation on the company's financials.
The revised price target reflects a more optimistic view of the company's financial prospects, considering the changes in the industry and SBI Cards' strategic responses. The stock's valuation has been adjusted to account for the improved outlook on profitability and asset quality.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.