Buy Shriram Finance; target of Rs 700: Motilal Oswal

Motilal Oswal's research report on Shriram Finance

Shriram Finance (SHFL)’s PAT in 3QFY25 rose ~14% YoY to ~INR20.8b. Post-tax gain on the sale of Shriram Housing was ~INR14.9b. Reported PAT (including exceptional gain) stood at INR35.7b. PPoP grew 11% YoY to ~INR40.8b (in line). NII in 3QFY25 grew ~14% YoY to INR55.9b (in line). Credit costs of ~INR13.3b translated into annualized credit costs of ~2.1% (PQ: 2.1% and PY: 2.4%). Yields (calc.) rose ~15bp QoQ while CoB rose ~10bp QoQ to 8.8%, resulting in spreads rising ~5bp QoQ to ~7.8%. Reported NIM declined ~25bp QoQ to ~8.5%, primarily because of negative carry from excess liquidity on the balance sheet. NIM will exhibit improvement once the excess liquidity normalizes within two quarters.

Outlook

The current valuation of ~1.3x FY27E BVPS is attractive for a ~19% PAT CAGR over FY24-27E and RoA/RoE of ~3.3%/16% in FY27E. Reiterate BUY with a TP of INR700 (based on 1.7x FY27E BVPS).