Shriram Finance hits new high on strong Q3 show, brokerages positive on merger synergies

With over a 92 percent rise in the share price over the past year, Shriram Finance is the top contender to replace UPL in the benchmark Nifty in the March review

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Shriram Finance hit a new high of Rs 2,442 on January 29 following a strong December quarter show, as the non-banking finance company’s assets under management grew to Rs 2.14 lakh crore, up 20.70 percent from the year-ago period.

The NBFC’s net profit grew 4 percent YoY to Rs 1,874 crore, even as the company’s provisions increased 37 percent.

At 10.55 am, the stock was quoting at Rs 2,386 on the National Stock Exchange, up 3.4 percent from the previous close. Trading volumes were 18 lakh shares, significantly higher than the one-month volumes of 7 lakh.

With over 92 percent rise in the share price over the past year, Shriram Finance is the top contender to replace UPL in the benchmark Nifty in the March review.

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Shriram Finance, which came into being in 2022 after the merger of Shriram Transport Finance Company (STFC) and Shriram City Union Finance, has been rapidly diversifying its loan book.

Brokerages remain positive on the NBFC after the Q3 result.

Morgan Stanley has an “overweight” call on Shriram Fin, setting a target of Rs 2,700. It said the pre-provisioning operating profit was 3 percent better than estimated due to robust growth in Assets Under Management (AUM). Valuation is undemanding, it added.

HSBC has a “buy” call with a target of Rs 2,720, saying that operating performance has aligned with expectations.

Citi has also maintained a “buy” call, setting a target of Rs 2,670.

Despite a marginally lower third quarter PAT, Citi analysts were pleasantly surprised at the quarter-over-quarter expansion of Net Interest Margin (NIM) to 8.9 percent, surpassing the previous quarter by 60 basis points.

Nomura reiterated its “buy” call with a target of Rs 2,700. The company’s valuations warrant a further re-rating and expect steady performance to continue, it said.

Also Read: Shriram Finance up 5% on Goldman Sachs upgrade; top contender for Nifty 50 in March review

Management guidance of 20 percent and 15 percent AUM growth in FY24 and FY25, respectively, instils confidence, Nomura said, with the company expressing reasonable confidence in maintaining margins at around 8.9 percent.

Umesh Revankar, executive vice-chairman, Shriram Group, told Moneycontrol that personal loan segment of the NBFC was seeing no adverse impact of the Reserve Bank of India’s (RBI) tightened norms on the risk weight.

On November 16, the central bank increased risk weight by 25 percent on consumer credit exposure of commercial banks and non-banking finance companies (NBFCs) to 125 percent.

Shriram Finance’s net non-performing assets (NPAs) in Q3 reduced to 2.72 percent from last year’s 3.20 percent.

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