Shriram Finance Q1 Results Review - A Mixed Bag; Strong On Growth, Weak On Margins: Systematix

Systematix Research Report

Shriram Finance Company Ltd.'s Q1 FY24 earnings were marginally lower than expected due to higher-than-expected net interest margin contraction and higher opex, even as assets under management growth remain healthy at 18.5% YoY.

NIM contracted 34 basis points QoQ due to a 22 bps increase in cost of funds and 12 bps reduction in yields.

Shriram Finance's asset quality improved marginally with gross stage III/II improving by 17/23 bps to 6.0%/ 3.0%, with credit cost also normalising to 1.9% from 2.6% in Q4.

Even as the opex was higher than expected, opex/ income ratio declined by 110 bps qoq to 30.8% from 31.9% in Q4, due to higher base in Q4 on account of few one offs.

Nevertheless, we remain positive on growth and asset quality.

Moreover, with Piramal stake sale behind, the supply risk in the stock is no longer there, warranting the discount to historical valuation multiple to narrow.

We reiterate our 'Buy' rating on Shriram Finance, with a target price of Rs 2,175 (Rs 1,850 earlier), valuing it at 1.5 times FY25-book value.

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