Motilal Oswal's research report on Shriram Finance
Shriram Finance (‘SHFL’) PAT grew 14% QoQ to ~INR17.8b in 3QFY23, driven by margin expansion and lower opex. Adjusted PAT grew 18% QoQ. NII grew 8% QoQ to INR40.6b (7% beat; in-line, if adjusted for the impact of merger accounting). Reported NIM expanded ~25bp QoQ to 8.5%. Other operating income grew 7% QoQ, led mainly by fees and commission income. Opex was flat sequentially with cost-income ratio at 26.6%. SHFL’s customer and product proposition positions it to operate in a benign competitive landscape, and gives it the pricing power to pass on its higher cost of borrowings to customers in new loans disbursed. We estimate margin compression of ~15bp YoY in FY24 to offset the impact of fair valuation under merger accounting. We model an AUM CAGR of 14% over FY23-25, led by 12% CAGR in disbursements over the same period. We estimate ~13% PAT CAGR over FY23-25, resulting in an RoA/RoE of ~3.3%/16%, respectively, over FY25.
Concerns around potential exits by investors(such as PIEL, Apax, and TPG)still remain an overhang on the stock. We believe the merged entity will emerge stronger than the respective standalone businesses, driven by better ability to cross-sell and due to the benefits on the liability side. We reiterate our BUY rating with a TP of INR1,700 (based on 1.2x Sep’24E BVPS).
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