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Dolat Capital Report
Shriram Finance Company Ltd. reported profit after tax of Rs 17.5 billion (our estimate: Rs 17.8 billion); up 13% YoY / 5% QoQ. Higher assets under management growth of 20% YoY (our estimate: 18%) and margin accretion (net interest margins +60 basis points QoQ) aided net interest income / pre-provision operating profit growth of 17% / 16% YoY respectively beating our estimate by 4%.
Core return on equity of 16.6%; inching closer to the mid range of the guidance (16-18%) in the med-term.
On asset quality - gross stage-III ratio improved 24 bps QoQ and 52 bps YoY with provision coverage ratio increasing to 53.1% (+55 bps QoQ).
Shriram Finance's credit cost increased to 2.3% (versus 1.9% last quarter; estimate: 2%) on account of higher standard asset cover (+300 bps on gross stage-I) and settlements.
Write-off for the quarter at 1.7% (annualised) are contained within historical range with the management retaining its full year credit cost guidance at 1.5-2%.
We raise our target price to Rs 2,400 (versus Rs 2,100) as we roll forward to March 2025; implying a valuation of 1.4 times on one year forward price/book.
Key downside risks to target price and rating include –
muted capex cycle,
competition intensifying from emerging players,
weakness in commercial vehicle cycle prompting high discounts in new vehicle pricing and
deterioration in asset quality.
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