CLSA reiterates 'outperform' call on Shriram Finance amid stable asset quality, margins

Shriram Finance has projected to surpass its stated guidance of 15 percent year-on-year AUM growth for FY25

Global brokerage firm CLSA maintained an 'outperform' call on Shriram Finance and set target price at Rs 3,350 apiece, saying that the NBFC player is well placed on loan growth, margins, and asset quality.

"Guiding mid-teens loan growth driven by higher cross sell of existing products across more branches. Shriram Finance also plans to open 100-200 branches per year and is guiding 100 basis points improvement in return on equity per year for the next two years," analysts highlighted.

Shriram Finance is also giving an emphasis on improving fee income while keeping the operating expenditure steady. Moreover, collections have been healthy, with credit costs in check, added CLSA analysts.

ALSO READ: Shriram Finance plans to raise $1 bn from overseas in next 6 months

Shriram Finance has projected to surpass its stated guidance of 15 percent year-on-year AUM growth for FY25, driven by stronger-than-expected disbursements in the June quarter. In its AUM mix, the company expects MSME loans to grow by 20 percent, old truck financing by 12 percent, and two-wheeler loans to rise between 15-18 percent in the current financial year.

On the asset quality front, the management aims to reduce gross stage assets 3 (loans that have been overdue for 90 days) to 5 percent by FY25 from 5.39 percent reported as on June 30, 2024.

To fuel its business expansion, Shriram Finance plans to raise $1 billion (approximately Rs 8,300 crore) from overseas over the next six months. This fundraising will include loans from development financial institutions such as the Asian Development Bank, KfW, and the United States Development Finance Corporation (DFC).

Despite the stock's impressive 58 percent surge this year, Shriram Finance still trades at a relatively low valuation of 2.55x price-to-book (PB) ratio. In comparison, Bajaj Finance trades at a significantly higher 6x PB ratio, while Sundaram Finance and Cholamandalam Investment are both valued at 6x PB ratio and 4x PB ratio, respectively.

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