Buy Shriram Finance; target of Rs 700: Motilal Oswal

Motilal Oswal's research report on Shriram Finance

Shriram Finance (SHFL) offers a well-diversified product suite and has emerged as a strong player across all its product segments. It has demonstrated strong execution capabilities and asset quality resilience while navigating multiple credit and economic cycles. Even though things might appear to be moving slowly on the economic front in India, we believe that economic activity (such as infrastructure, real estate, and mining) will pick up in the next 3-6 months, resulting in healthy demand for commercial vehicles (CV). On the flipside, even if the new CV segment slows down, SHFL remains better positioned than its peers, owing to its strong foothold in the used CV segment. The diversified composition of the company’s loan book has mitigated its exposure to the cyclicality of the CV business, a challenge faced in the past. By capitalizing on cross-selling opportunities within its non-auto portfolio, the company has strategically positioned itself to achieve a more balanced loan mix while maintaining healthy asset quality.

Outlook

We expect SHFL to deliver a PAT CAGR of ~19% over FY24-27E and RoA/RoE of 3.3%/17% in FY27E. SHFL’s valuations have already re-rated from 1.2x to 1.5x 1-year forward P/BV over the last 12 months. We see scope for further re-rating if the company is able to sustain the execution on its AUM growth, margins and credit costs. SHFL is our TOP pick within our NBFC coverage with a TP of INR700, based on 1.7x FY27E P/BV.