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On Monday, UBS analyst adjusted the price target for Shriram Finance Ltd (SHFL:IN) to INR700 from the previous target of INR760, while continuing to endorse the stock with a Buy rating. The analysis followed Shriram's third-quarter results, which exhibited steady performance with credit costs aligning with expectations and promising insights on growth and asset quality.
Shriram Finance's Assets Under Management (AUM) expanded by 18.8% year-over-year, slightly below UBS's estimate of 19.5%. Net Interest Income (NII) increased by 14% year-over-year, which was a marginal 2% below UBS's expectations. The company's calculated Net Interest Margins (NIMs) saw a decline of approximately 20 basis points quarter-over-quarter, contrary to UBS's forecast of unchanged NIMs. This decline was largely attributed to the company holding higher liquidity following a $1.3 billion fundraising effort in the third quarter, leading to around an INR85 billion increase in cash quarter-over-quarter.
The management anticipates that margins will return to normal levels in the following two quarters. The Gross Stage 3 (GS3) assets, representing loans at risk of default, increased modestly by 10 basis points quarter-over-quarter, aligning with expectations. The credit cost stood at 2.1%. Excluding an exceptional gain of INR14 billion from the sale of its housing finance subsidiary, Shriram's Profit After Tax (PAT) was INR20.8 billion, marking a 14% increase year-over-year and meeting UBS's projections.
The company's leadership remains optimistic about strong demand in rural regions and has noted an uptick in capital expenditure over the last two months. Despite a slight rise in GS3 across certain segments, which the company considers a seasonal pattern, the overall expectation is for stable asset quality trends.
In response to these findings, UBS has slightly reduced growth projections and increased credit cost estimates, leading to a 2-3% reduction in Earnings Per Share (EPS) forecasts and the revised price target of INR700, implying a 2.1 times Price to Fiscal Year 2026 Book Value (P/FY26BV).
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