The shares of Shriram Finance Ltd gained nearly 10% to hit its 52-week high level on Friday, October 27, after analysts raised their bets on the company which reported strong numbers on loan growth and margins for the September quarter of the financial year 2024.

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The stock surged nearly 10% to its 52-week high of ₹1,975 apiece on BSE in morning deals. The stock earlier hit its 52-week high of ₹1,974.95 on September 12, 2023.

Most of the analysts assigned a ‘buy’ rating or ‘outperform’ on Shriram Finance and expect up to 30% upside in the next 12 months as the Chennai-based finance company reported a healthy 18% year-on-year growth in net interest income for the September quarter.

Analysts at brokerage Investec upgraded Shriram Finance Ltd to ‘buy’ from hold earlier and also raised the target price to ₹2,100 per share, implying up to 16% potential upside compared to Thursday’s close.

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Investec in a report mentioned that India’s leading vehicle finance company’s headline asset quality improved (Stage-2 & Stage-3 declined), however, credit cost was higher than its estimates due to higher write-offs.

The asset under management (AUM) of the Shriram Group company rose by 5% sequentially and net interest interest margins (NIM) improved 42 basis points (0.42 percentage point) quarter-on-quarter.

“Our concerns on its long-term growth potential given its size (AUM of ₹2 trillion) and higher cost of funds (100 bps higher than MMFS/CIFC) remain,” the brokerage stated.

However, in the near term, the brokerage expects loan growth of 20% YoY in FY24E and 15%-plus YoY in FY25E with RoEs of 15%. The merger with SCUF helped improve its growth prospects.

“With improved growth prospects, undemanding valuation, and technical overhang over we upgrade to ‘buy’ from a 12-month perspective with revised TP of ₹2100,” Investec stated.

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Brokerage CLSA assigned an ‘outperform’ rating on the Chennai-based company with a target price of ₹2,050 per share, reflecting a potential upside of 14%.

CLSA noted that loan growth momentum was healthy while margins surprised positively and it expects healthy AUM growth in the second half of FY24 as well. Higher-than-expected credit cost, but net slippages in line with expectation, CLSA mentioned. The brokerage raised the FY24-26CL EPS estimates by 6-10%.

Macquarie assigned an outperform rating on Shriram Finance saying the profit after tax was in line with estimates and the impact of higher provisions offset by higher margins.

Macquarie set the target price at ₹2350, implying a potential upside of 30%. The brokerage expects NIMs to decline in the second half of FY24E and expects overall NIM growth of 18-20% this fiscal. “Credit cost guidance of 2% to drive 3% ROAs for FY24,” it stated.

Global brokerage CITI assigned a Buy rating on the vehicle financier with a target price of ₹2,250, implying potential upside of 25%. CITI noted that sharp expansion in NIMs, improved growth offset by higher write-offs. “Improved AUM growth momentum with better NIM profile makes us revise earnings by 2% for FY24/25/26E, leading to >3.2% / 16% RoA / RoE profile,” CITI stated while projecting RoA at 3.1%.

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HSBC also increased the FY24-26e EPS estimates 3.5-7.8% to reflect improved AUM growth and margin outlook for Shriram Finance. “2Q net profit beat estimate by 3.4%, led by a strong NII estimate beat as NIM expanded 60 bps QoQ,” HSBC said. Increased EPS estimates and 1.5x FY25e BVPS target multiple, it added. HSBC assigned a ‘buy’ call with a target price of ₹2300, reflecting a potential upside of 27%.

Chennai-based Shriram Finance on Thursday reported an 18% year-on-year growth in net interest income (NII) to ₹4,934 crore in the September quarter compared to ₹4,174 crore in Q2 of FY23.

Its net profit rose profit rose 12.59% to ₹1,751.44 crore in the July-September quarter compared to ₹1,555 crore a year ago. The total income rose 15.44% to ₹8,564.45 crore for the quarter.

Shriram Finance shares were trading 9.17% higher at ₹1962.45 apiece at 10.37 AM.

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(Edited by : Asmita Pant)

First Published:Oct 27, 2023 11:45 AM IST