Shriram Finance jumps 7%, nears 52-week high on heavy volumes

Shares of Shriram Finance surged 7 per cent to Rs 1,500 in Monday’s intra-day trade, amid heavy volumes. The stock of non banking financial company (NBFC) quoted close to its 52-week high level of Rs 1,509, touched on July 25, 2022.

Till 09:48 am; around 9.98 million shares, which represented 2.66 per cent of total equity of Shriram Finance have changed hands on the BSE, data shows. A combined 11.3 million shares or 3 per cent of total equity of NBFC company changed hands on the BSE and NSE. The names of the buyers and sellers were not ascertained immediately.

Currently, the stock traded 5 per cent higher, as compared to 0.12 per cent gain in the S&P BSE Sensex.

Shriram Finance is the flagship company of the Shriram group which has significant presence in Consumer Finance, Life Insurance, General Insurance, Housing Finance, Stock Broking and Distribution businesses.

Shriram Finance is India’s largest retail asset financing NBFC, with Assets under Management (AUM) of Rs 1.85 trillion. Shriram City Union Finance and Shriram Capital were amalgamated with Shriram Transport Finance Company and the name of Shriram Transport Finance Company has been changed to Shriram Finance effective November 30, 2022.

Shriram Finance’s January-March quarter (Q4FY23) earnings were impacted by merger-related expenses and higher provisioning. Balance sheet growth, however, was robust with AUM growth of 15.9 per cent/4.6 per cent YoY/QoQ, driven by PV, 2W and PL, with steady growth in the CV portfolio (+13 per cent YoY).

However, P&L outcomes were impacted by impairment of intangibles (Rs 300 crore) and higher credit costs (Rs 300 crore) on the back of increase in probability of default for various product categories. Asset quality, too, witnessed marginal deterioration with high write-offs (Rs 810 crore).

Analysts at HDFC Securities tweaked its FY24/FY25 estimates to factor in higher loan growth, partially offset by impairment of intangibles and maintained 'add' with a revised SoTP-based target price of Rs 1,645, implying 1.3x Mar-25 ABVPS.

With increased focus on growth in retail products, such as MSME, gold or personal loans, along with disbursement of new loans, analysts at Emkay Global Financial Services expect margins to expand to ~10.6 per cent in FY26E from ~10.3 per cent in FY23.

"We expect overall credit costs to moderate to 2.25 per cent by FY26E from 2.8 per cent in FY23E. In-line with the management's guidance, we have built-in 15 per cent AUM CAGR over FY23-26E, resulting in FY26E RoA of 3.6 per cent, translating into RoE of 17.5 per cent,” the brokerage firm said.