Buy Shriram Finance; target of Rs 1685: YES Securities

YES Securities' research report on Shriram Finance

Shriram Finance delivered a reasonably strong performance in Q3 FY23 that was characterized by a) brisk well-rounded disbursements growth (up 13% qoq/28% yoy), b) acceleration in AUM growth (up 4.8% qoq/13% yoy), c) 25-30 bps improvement in NIM underpinned by rationalization of borrowings/liquidity, and largely stable borrowing cost and loan mix, d) absolute opex being flat qoq on account of lower merger related expenses (Q2 also had Rs650mn of one-time sales tax litigation settlement expenses), e) stable credit cost owing to lower write-offs and marginal improvement in the share of Current/Stage-1 assets and f) impressive RoA/RoE levels of 3.4%/17%.

Outlook

We expect the co. to deliver 12-15% growth in AUM and earnings in FY24/25 with RoE of 15-16%. Basis this expectation and an undemanding valuation (1.2x P/ABV and 6.6x P/E on FY24 estimates), we rate the stock as BUY with 12m PT of Rs1685.