Non Banking Financial Company (NBFC) Shriram Finance's June-quarter earnings comfortably beat Street estimates, aided by stronger margins, lower provisions and the benefits of MUFG's recent investment.
While brokerages largely remained positive on the stock, the common thread across research reports was that stronger loan growth will be key to unlocking the next phase of valuation upside.
ALSO READ: Shriram Finance Q1 Results: Profit Rises 60%, NII Jumps 34% As Asset Quality Improves
Brokerages Decode
JPMorgan
- Maintained Overweight with a target price of Rs 1,215.
- Said MUFG's investment could accelerate growth by lowering funding costs by 50-80 basis points.
- Noted Q1FY27 profit beat estimates by 6%, supported by lower operating expenses and provisions.
- Said assets under management (AUM) growth of 15.3% year-on-year remains below the company's 18-20% target, making growth acceleration critical for a re-rating.
- Remains constructive over the medium term, citing a potential ratings upgrade, an improving liability profile and an estimated 19% earnings CAGR over FY27-FY29.
- Highlighted stable credit costs at 1.91%, with management maintaining its 2% guidance.
Jefferies
- Maintained Buy with a target price of Rs 1,210.
- Said June-quarter profit rose 60% year-on-year to Rs 3,440 crore, coming in around 2% above estimates due to stronger net interest margins.
- Said AUM growth remained steady at 15.3%, with management retaining FY27 growth guidance of 18%.
- Noted net interest margin expanded 91 basis points sequentially to 10%, aided by gains from MUFG's Rs 40,000 crore equity infusion.
- Said credit cost remained at 1.9%, below management guidance, and expects it to decline further to 1.85%-1.8% over FY27-FY28.
- Expects 17% EPS CAGR and 14% return on equity by FY28.
HSBC
- Maintained Hold and cut the target price to Rs 1,140 from Rs 1,200.
- Said AUM growth continues to lag peers.
- Noted June-quarter profit was 14% ahead of estimates, driven by stronger interest income and lower credit costs.
- Raised FY27-FY29 earnings estimates by 1-10%.
- Said the widening AUM growth gap versus peers could continue to weigh on valuations.
UBS
- Maintained Buy with a target price of Rs 1,230.
- Described the quarter as stable with profit ahead of expectations due to better margins.
- Said it continues to see healthy momentum in the vehicle finance business.
Shriram Finance's Q1 Performance
Shriram Finance reported a 59.8% year-on-year rise in standalone net profit to Rs 3,445 crore, while net interest income increased 33.7% to Rs 8,056 crore.
Net interest margin expanded to 9.04% from 8.11% a year ago and 8.61% in the previous quarter, while operating profit climbed 45.2% year-on-year to Rs 6,085 crore.
On asset quality, gross Stage 3 assets stood at 4.64%, compared with 4.53% a year ago, while net Stage 3 assets improved to 2.33% from 2.57%.
Separately, the board approved a resource mobilisation programme to raise funds through debt securities in domestic and overseas markets between Aug. 1 and Oct. 31 to support business requirements.
The company also said it had utilised Rs 37,451 crore of the proceeds from MUFG's preferential allotment during the quarter, while the remaining Rs 2,167 crore has been invested in liquid mutual funds.
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