UBS initiates coverage on Shriram Finance with ‘buy’ rating; stock spurts 3%

UBS also said the market underappreciates the company’s medium-term earnings per share (EPS) growth potential.

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Shares of Shriram Finance darted up over 3 percent in morning trade on August 17 after UBS initiated coverage on the non-banking finance company with a ‘buy’ rating, citing its EPS growth potential.

At 9.50 am, shares of Shriram Finance were trading 3.46 percent up at Rs 1,858.10 on the BSE.

UBS said the company is a leader in the organised high-yield used commercial vehicles financing and two-wheeler segments.

It expects the net interest margin (NIM) compression to be transitory, adding that accomplishing new segments will be key for the firm.

“Expect 16.9 percent and 16 percent AUM and disbursement CAGRs, respectively, in FY23-25,” the global investment bank added.

Shriram Finance’s CAGR will be led by growth in vehicle financing and new segments over FY24-25, it added.

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UBS also said the market underappreciates the company’s medium-term earnings per share (EPS) growth potential.

EPS growth may support a further re-rating on inexpensive valuations, it added.

UBS has a target price of Rs 2,185 for the stock, which represents a potential upside of around 17 percent from the current levels.

Meanwhile, Morgan Stanley, in a note on NBFCs, said their Q1 results were a mixed bag and repo rate cut expectations are getting pushed out.

Given elevated inflation, it expect pressure on NBFC stocks in the near term, but added that valuations are reasonable to attractive for most lenders.

Morgan Stanley has an ‘overweight’ rating on Shriram Finance, with target  price at Rs 2,200.

Shriram Finance on July 27 reported a 25.13 percent rise in its April-June quarter net profit to Rs 1,675.44 crore, as against Rs 1,338.95 crore recorded in the year-ago period.

Net Interest Income (NII) for the first quarter ended June 30 increased by 11.31 percent and stood at Rs 4,435.27 crore as against Rs 3,984.44 crore in the same period of the previous year.

Also Read: Shriram Finance could see $48 million inflow from MSCI weight increase

Total Assets under Management (AUM) as on June 30, 2023 stood at Rs 1,93,214.66 crore as compared to Rs 1,62,970.04 crore on June 30, 2022 and Rs 1,85,682.86 crore as on 31st March, 2023.

In the AUM, personal loans increased 81.31 percent on-year to Rs 79,19.65 crore and passenger vehicles segment rose 28.47 percent on-year to Rs 362,91.97 crore in the April-June quarter.

According to an investors presentation by the firm, passenger vehicles and personal loan segment comprise of 18.78 percent and 4.10 percent of the total AUM.

Shares of Shriram Finance are up 33 percent on YTD basis, while the 1-year return stands at 36 percent.

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