SHFL’s Q4FY25 results were mixed – credit cost was elevated causing a PBT miss, which was offset by lower tax rate that led to in-line PAT. This was due to temporary factors: i) Reported NIM dropped by 23bps QoQ to 8.25%, largely on excess liquidity of ~Rs120bn owing to large ECB loans raised in Dec-24 and Q4. ii) SHFL technically wrote-off Rs23.45bn of loan fully provided for; this led to GS3/NS3 of 4.55%/2.64% in Q4 vs 5.38%/2.68% in Q3, and PCR drop to 43.3% from 51.6% QoQ. iii) The slightly elevated credit cost may have seen impact of the portfolio stress-testing scenario outcomes. These now being behind, the gradually reducing excess liquidity and falling-rate environment should support NIM ahead, and credit cost stabilize a tad lower vs Q4FY25; this would lead to ~15% AUM growth and RoA/RoE of ~3%/16% in FY26E.
OutlookTo reflect Q4 developments/outlook, we tweak our FY26-27 estimates that slightly reduces our NII/NIM and increases our credit cost; hence we cut EPS by ~5%. We maintain BUY and Mar-26E TP of Rs750 (implying FY27E P/B of 1.9x).
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