Shriram Finance surges 9% on healthy September quarter results

Shares of Shriram Finance surged 9 per cent to Rs 1,960.20 on the BSE in Friday’s intra-day trade after the company reported healthy performance for the July-September quarter (Q2FY24), with total Assets under Management (AUM) up 19.6 per cent year-on-year (YoY) at Rs 2.02 lakh crore. The stock of non banking financial company (NBFC) had hit a 52-week high of Rs 1,974.95 on September 12, 2023.

AUM stood at Rs 1.69 lakh crore at the end of Q2FY23 and Rs 1.93 lakh crore as on Q1FY24. The growth in auto segment remained steady while non-auto segments (MSME, 2-wheeler and personal loans) continued to witness higher growth.

Net interest income (NII) rose 17.4 per cent YoY at Rs 4,818 crore during the quarter. NII includes net direct assignment income of Rs 104 crore in reported quarter. Profit after tax of the company jumped 12.6 per cent at Rs 1,751 crore.

Asset quality witnessed improvement with gross stage 3 assets declining 24 bps QoQ to 5.79 per cent. Margins witnessed improvement at 8.93 per cent, led by increase in yields while cost of funds remained broadly stable.

Management continued to maintain guidance of ~18-20 per cent and targets RoE at 16-18 per cent in FY24-25E. Sustained performance and gradual improvement in RoA is seen to aid valuation ahead, ICICI Securities said in a note.

Shriram Finance’s reported NIM expanded ~60bp QoQ driven by lower negative carry because of lower liquidity on the balance sheet, and increase in high-yielding products in the mix, according to Motilal Oswal Financial Services (MOFSL).

Shriram Finance benefits from a benign competitive environment, which allows it to pass on its increased borrowing costs to its customers on new loans disbursed, the brokerage firm said, and expect this NIM expansion to sustain in H2FY24.

“Shriram Finance should be able to sustain or improve upon its NIM trajectory, along with relatively benign credit costs. The company is yet to fully exploit its distribution network for products like MSME and gold loans. As Shriram Finance continues to do so over the next one year, the AUM growth of MSME, PL, and Gold Loans is expected to remain robust,” MOFSL said in result update.

With an expanded geographical presence and a larger workforce, Shriram Finance can leverage cross-selling opportunities to reach new customers, and introduce new products that would lead to improved operating metrics and a solid foundation for sustained growth, the brokerage firm said.