Shriram Finance Q3 Results Review - Merged Entity On An Even Stronger Footing: Motilal Oswal

Motilal Oswal Report

Shriram Finance Ltd.'s profit after tax grew 14% QoQ to ~Rs 17.8 billion in Q3 FY23, driven by margin expansion and lower opex. Adjusted profit after tax grew 18% QoQ.

Net interest income grew 8% QoQ to Rs 40.6 billion (7% beat; in-line, if adjusted for the impact of merger accounting). Reported net interest margin expanded ~25 basis points QoQ to 8.5%.

Other operating income grew 7% QoQ, led mainly by fees and commission income. Opex was flat sequentially with cost-income ratio at 26.6%. 

Shriram Finance’s customer and product proposition positions it to operate in a benign competitive landscape, and gives it the pricing power to pass on its higher cost of borrowings to customers in new loans disbursed. We estimate margin compression of ~15 bps YoY in FY24 to offset the impact of fair valuation under merger accounting.

We model an assets under management compound annual growth rate of 14% over FY23-25, led by 12% CAGR in disbursements over the same period. We estimate ~13% profit after tax CAGR over FY23-25, resulting in an return on asset/return on equity of ~3.3%/16%, respectively, over FY25.

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