Shriram Finance- Motilal Oswal's Top Pick In NBFC Sector — Here's Why

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Motilal Oswal Report

Shriram Finance Ltd. is currently facing transitory headwinds in its asset quality (compounded by weakness in economic activity) and net interest margin compression (driven by surplus liquidity on the balance sheet).

We expect these headwinds to gradually subside as over the last two years, the company’s execution on AUM growth and asset quality has been far ahead of its peers.

Notably, Shriram Finance has yet to fully leverage its expanded distribution network. We anticipate that tangible benefits from this enhanced reach will continue to materialize for another 12-18 months, driving further improvement in its performance.

Shriram Finance offers a combination of market leadership, strategic diversification into high-growth non-auto segments, potential for margin and operating efficiency improvements, and attractive valuations with strong earnings visibility.

The current valuation of ~1.6x FY27E book value per share is attractive for a ~19% PAT CAGR over FY25-27E and RoA/RoE of ~3.3%/17% in FY27E. Shriram Finance is our top pick in the NBFC sector with a target price of Rs 800 (based on 2x FY27E BVPS)

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