On Monday, BofA Securities revised its price target for Shriram Finance Ltd (SHFL:IN), reducing it to INR 779.90 from the previous INR 809.00, while maintaining a Buy rating on the stock. The adjustment follows Shriram Finance's recent financial performance, which BofA Securities found noteworthy for its consistency and resilience in a challenging macroeconomic environment.
Shriram Finance reported a 19% year-over-year increase in Assets Under Management (AUM) and a 14% rise in Net Interest Income (NII) to INR 55.9 billion, aligning with BofA Securities' expectations. However, the company's Net Interest Margins (NIMs) declined by 41 basis points quarter-over-quarter, settling at 8.23%, which is slightly lower than BofA's estimate of 8.26%. This decrease was attributed to heightened liquidity following Shriram Finance's successful raising of US$1.28 billion through External Commercial Borrowings (ECB).
Despite the dip in NIMs, Shriram Finance anticipates a recovery in the fourth quarter. The company's Recurring Profit After Tax (PAT) grew by 14% year-over-year to INR 20.8 billion, though it was 2% below BofA's estimate due to increased operational expenses. The firm outperformed many of its Non-Banking Financial Company (NBFC) peers and some large banks, with asset quality metrics such as Gross Stage 2 and 3 assets showing marginal increases but still better than expected.
Shriram Finance's credit costs remained stable quarter-over-quarter at 1.95 basis points, and the Provision Coverage Ratio (PCR) held steady at 51.6%. These results demonstrate the company's capability to manage risk amid investor concerns over potential delinquencies. Additionally, Shriram Finance reported no significant stress in its Commercial Vehicle (CV) portfolio, with customer utilization and freight rates remaining stable, and used vehicle prices maintaining a positive outlook for the fourth quarter.
The positive performance is further bolstered by a one-time exceptional income of INR 14.9 billion (post-tax) from the divestment of a stake in its housing finance subsidiary. Shriram Finance has also increased its operational expenses by investing in branding efforts, which the company plans to continue, aiming to enhance brand recall.
In light of these factors, BofA Securities has slightly adjusted its forecasts for Shriram Finance, reflecting the nuanced financial landscape the company navigates. Despite the reduced price target, BofA Securities' Buy rating indicates confidence in Shriram Finance's strategic direction and market position.
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