Shriram Finance gains, brokerages see up to 17% upside after a healthy Q1

Shares of Shriram Finance opened higher on July 28, a day after the non-bank financier reported net profit for the April-June quarter up 25.13% year-on-year to 1,675 ,44 Rs.
Investors seem impressed with the improvement in asset quality. Total Phase 3 assets fell to 6.03% as of June 30, from 6.21% in the March quarter and 6.27% a year ago.
Similarly, Stage 3 net assets were 2.96% in the first quarter of fiscal 2024, down from 3.19% in the previous quarter and 3.32% a year ago.
Stage 3 assets of non-banking financial corporations (NBFCs) are loans with maturities over 90 days. At 9:20 a.m., shares were trading at Rs 1,831.35 on the National Stock Exchange, up 1.1% from the previous close. Shriram Finance, established in 2022 following the merger of Shriram Transport Finance Company (STFC) and Shriram City Union Finance, has rapidly diversified its loan portfolio.
In the June quarter, the company’s assets under management increased 19% year-on-year, driven by growth in passenger vehicles, gold lending, MSMEs and personal lending. In the past, STFC branches have also started to offer personal loans, so this segment has grown by 81% year-on-year.
“As a merged entity, SHFL has been strategically positioned to leverage a diverse mix of assets under management, better access to debt, and better cross-selling opportunities,” the statement said. Motilal analyst Oswal Financial Services said in a note, referring to assets under management. The National Brokerage has a call to ‘buy’ the shares with a target price of Rs 2,100, up 16% from the current market price.
With salaries consistent in the first quarter, all merger-related expenses are now fully accounted for, analysts say. As a result, NBFC’s expense/income ratio was higher during the quarter. The cost-to-earnings ratio was about 31% compared to 27% in the previous quarter, as staff costs increased by about 33% year-over-year.
Nuvama Institutional Equities changed the stock from “hold” to “buy” and raised its price target to Rs 2,145, up 17% from the current price. One of the reasons for the Nuvama upgrade is that management doesn’t expect capital costs to increase from here. During the June quarter, NBFC funding costs rose seven basis points consecutively to 8.89%.
A basis point is a hundredth of a percentage point.
On the earnings call, management reiterated its forecast for 15% growth in assets under management for fiscal year 24, although the full-year forecast will be clearer by the end of the following second quarter. when assessing the state of the rural economy and the impact of the monsoon.
In June, TPG and Piramal Enterprises sold their entire stake in Shriram Finance, which had been taken over by several national mutual funds. With that, the technical redundancy for the stock has now passed, analysts say.