Shriram Finance Q2 Results Review - Margin Expansion Drive Beat In Operating Performance: Systematix

Systematix Research Report

Shriram Finance Company Ltd.'s Q2 FY24 operating performance was better than expected with net interest income/operating profit at Rs 45.9 billion/ 34.8 billion versus our estimate of Rs 43.2 billion/ 32.5 billion, aided by strong margin expansion of 60 basis points QoQ at 8.9% and 20% YOY growth in assets under management.

Reduced liquidity buffer to three months (versus five-six months earlier) and higher growth in high yielding segments of passenger vehicle, gold loan and micro, small and medium enterprise aided in sharp increase in NIMs.

Asset quality saw marginal improvement with gross stage-III/net stage-III at 5.8%/2.8% versus 6%/3% in Q1, partially aided by higher write offs at Rs. 8.4 billion.

As a result, credit costs was higher at 2.3% versus 1.9% in Q1, leading to inline profit after tax at Rs 17.5 billion.

Outlook remain upbeat, with management increasing their AUM growth guidance to 18-20% (15% earlier), while maintaining their credit cost guidance at ~2% for FY24.

Though some moderation is expected in NIMs in H2 from current levels, as new commercial vehicle sales pick up in H2 which is a low yielding segment.

We revised our earnings estimates upwards by 2.5%/ 4% for FY24/25, as we factor in higher AUM growth.

We reiterate our 'Buy' rating on Shriram Finance, with a revised target price of Rs 2,335 (Rs 2,175 earlier), valuing it at 1.6 times FY25 book value.

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