 "Shriram Finance rallies 7% on strong Q2 results; approves 1:5 stock split")
Shares of Shriram Finance rallied 7 per cent to Rs 3,313.65 on the BSE in Monday’s intra-day trade after the company reported a strong performance for the second quarter of the 2024-25 financial year (Q2FY25). Its asset under management (AUM) grew by 20 per cent year-on-year (YoY) to Rs 243,000 crore during the quarter, driven primarily by passenger vehicle (PV) (19.6 per cent YoY), farm equipment (28.4 per cent YoY) and MSME (51.2 per cent YoY), supported by continued healthy growth in commercial vehicle (CV) (14 per cent YoY).
The company’s profit after tax jumped 18.26 per cent YoY to Rs 2,071 crore, from Rs 1,706 crore in the year ago quarter. The company's net interest income grew 16.37 per cent YoY to Rs 5,607 crore. However, margin declined by 23 bps YoY and 15 bps quarter-on-quarter (QoQ) to 8.74 per cent, primarily due to a rise in the cost of funds which outpaced the increase in yield on advances made by the company.
Credit costs for the company remained stable at 1.84 per cent, broadly consistent with previous quarters. The company's asset quality also improved, with gross NPA ratio improving by 7 bps sequentially to settle at 5.32 per cent, which eventually improved the company's net NPA by 7 bps QoQ to 2.64 per cent.
Shriram Finance's management guided that net interest margin (NIM) can be maintained at the current levels or there can be a slight improvement. The company indicated that disbursement and AUM growth will be reasonably good in H2FY25 as well.
Shriram Finance has positioned itself to capitalise on its diversified AUM mix, improved access to liabilities, and enhanced cross-selling opportunities. The monetisation of its stake in Shriram Housing will further help the company improve its capital adequacy and help it engage constructively with credit rating agencies for a credit rating upgrade, Motilal Oswal Financial Services (MOFSL) said in the company's result update.
The company reported an operationally healthy quarter with healthy AUM growth. However, there was a minor NIM compression because of a decline in higher-yielding products like gold loans and personal loans. Shriram is yet to fully utilise its distribution network for non-vehicle products. Further, the company's AUM growth in MSME will remain stronger compared to other segments, the brokerage firm said,
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Shriram Finance is effectively leveraging cross-selling opportunities to reach new customers and introduce new products, leading to improved operating metrics and a solid foundation for sustainable growth, MOFSL said. The brokerage firm reiterated its 'Buy' rating on the stock with a target price of Rs 4,000 (based on 2.2x Sep’26E BVPS).
The company's management remains optimistic about future growth, expecting a 17-18 per cent increase in the commercial vehicle (CV) portfolio over the next two quarters. Meanwhile, asset quality is expected to improve, with Gross Stage 3 loans targeted to reach 5 per cent. The company also engaged with rating agencies for a credit rating upgrade which could further support margins ahead, ICICI Securities said in a note.
The company's board has also declared an interim dividend of 220 per cent, that is, Rs 22 per equity share for the financial year 2024-25. The company has fixed November 7, 2024, as the record date for the purpose of payment of the interim dividend. The interim dividend payout will be made to eligible shareholders on or before Sunday, November 24, 2024, it added.
Apart from that, the company’s board also approved the sub-division/ split of face value of equity share in the ratio of 1:5, that is. from Rs 10 paid-up to Rs 2 paid-up. The rationale behind the stock split is to enhance the liquidity of the company's equity shares and to encourage the participation of retail investors at large by making equity shares of the company more affordable, Shriram Finance said.
Thus far in the calendar year 2024, the stock price of Shriram Finance has rallied 62 per cent, as compared to the 11 per cent rise in the BSE Sensex. The stock had hit a record high of Rs 3,652.15 on September 27, 2024.