Why Goldman Sachs Prefers Shriram Finance Over M&M Finance

Goldman Sachs expects Shriram Finance Ltd. to outperform Mahindra & Mahindra Financial Services Ltd. in return metrics, noting recent outperformance of Indian retail non-banking financial company stocks over consumer retail NBFCs.

According to a note from May 9, the brokerage predicts that Shriram Finance will significantly surpass M&M Finance in terms of return on assets and loan-to-earnings per share growth, expecting a 300 bps higher CAGR over FY24-FY26. The brokerage maintains a 'buy' rating on Shriram Finance.

The research firm expects Shriram Finance to achieve a 23% EPS CAGR over FY24–26E based on improving ROAs, stable credit costs, and operating leverage.

Goldman reduced Mahindra & Mahindra Financial Services' target price by 13% to Rs 233 per share, while maintaining Shriram Finance's target price at Rs 2,864 per share.

• Downgrades to 'sell' citing elevated credit costs given, higher cost-to-income ratio and moderating loan growth .

• Cuts earnings for MMFS by 9%/7% on account of mainly higher operating expenses.

• Given the lower confidence on growth, ROA and risk framework, the stock would likely de-rate further.

• Post its merger with erstwhile SCUF, Shriram has emerged stronger with better profitability and visibility on loan growth.

• Expects the company to deliver 23% EPS CAGR over FY24-26E with improving ROAs.

• Expects the stock to continue to see re-rating.

Shares of Shriram Finance was trading 1.1% higher at Rs 2,384 per share, while those of Mahindra & Mahindra Financial Services were trading 0.38% lower at Rs 252 apiece. This is compared to a 0.31% advance in the benchmark Nifty 50 as of 10:55 a.m.