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On Monday, Morgan Stanley (NYSE:MS) analysts adjusted their outlook for Shriram Finance Ltd (SHFL:IN), reducing the price target to INR750 from INR840, while continuing to recommend the stock with an Overweight rating. This change follows the company's third-quarter financial results for fiscal year 2025, which showed promise and suggested an even stronger fourth quarter on the horizon.
The management at Shriram Finance expressed confidence regarding the current economic climate and anticipates a gradual improvement moving forward. They noted robust loan demand expected for the fourth quarter and attributed a slight dip in asset quality to seasonal effects from the festive period and temporary cash flow challenges. The company anticipates that collections will bounce back in the fourth quarter.
Despite a minor shortfall in credit costs compared to Morgan Stanley's estimates, due to stable coverage rather than the expected reduction, Shriram Finance's operating costs have increased, primarily because of heightened branding expenses. However, the company forecasts a decrease in the cost/income ratio.
The net interest income (NII) met Morgan Stanley's projections but fell short of the broader consensus, which was attributed to surplus liquidity on the company's balance sheet. This is expected to normalize over the coming quarters.
Shriram Finance's stock has seen a decline of 25% since September 24, 2024, which contrasts with a 10% drop in the Sensex over the same period. Analysts believe that the company's historical sensitivity to economic fluctuations, its remarkable stock performance in 2023 and 2024, high foreign investment positioning, and relatively low average multiples influenced by a series of events—including the non-banking financial company crisis, the global pandemic, and an internal merger—have all contributed to the stock's recent performance.
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