Shriram Finance surges 9% on robust Q2. Should you buy?

Shriram Finance's share price has jumped over 40 percent so far in 2023.

Shares of Shriram Finance surged 9 percent on October 27 morning, a day after the company reported in-line earnings for the September quarter.

Net profit was up 13 percent on-year and total income rose 15.4 percent (YoY). The company's net interest income (NII) surprised positively. Analysts expect stable loan growth and asset quality and a fall in credit costs.

With an expanded geographical presence and a larger workforce, Shriram Finance can leverage cross-selling opportunities to reach new customers, and introduce new products that would improve operating metrics and lay the foundation for sustained growth, Motilal Oswal said in its report.

According to Motilal Oswal analysts, Shriram Finance is yet to fully exploit its distribution network for products like MSME and gold loans.

"As SHFL continues to do so over the next year, the AUM growth of MSME, PL, and gold loans is expected to remain robust," they said.

Its asset under management (AUM) growth stayed strong, driven by strong disbursal growth. CLSA expects healthy AUM growth in the second half of FY24 as well.

It raised CY24-26 EPS estimates by 6-10 percent and assigned an “outperform” rating to Shriram Finance with a target price of Rs 2,050.

Shriram Finance should be able to sustain or improve its NIM trajectory along with relatively benign credit costs, Motilal Oswal said.

As a merged entity, Shriram Finance has positioned itself to capitalise on the diversified AUM mix; improved access to liabilities; and enhanced cross-selling opportunities, it added.

The brokerage has a “buy” call on the stock with a target price of Rs 2,325 a share.

With the business outlook being strong and technical overhang behind, Nuvama Institutional Equities also recommend that investors “buy” Shriram Finance stock. "With another strong quarter of AUM growth and NIM, we retain target price of Rs 2,145," it said.

Also Read | Shriram Finance Q2 earnings: Net profit rises 13% on-year to Rs 1,751 crore

Jefferies said that over FY23-26, Shriram Finance should deliver 18 percent earnings per share (EPS) CAGR and a 15 percent return on equity (ROE), which should lift valuation.

The brokerage, too, has a “buy” call on the stock with a base case target price of Rs 2,300 and a bull case target price of Rs 2,590.

At 10.44 am, the stock was trading at Rs 1,960.3 on the National Stock Exchange, up 9 percent from the previous close.

The scrip has gained more than 40 percent this year and over 56 percent in the past year.

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