Analysts recommend buying these 3 finance stocks, see up to 25% upside

The earnings season is in full swing and so are the financial services stocks, on an index level Nifty Financial Services has shot up by 3 per cent in the last one month, while in comparison Nifty 50 rose by 0.90 per cent till Thursday's intraday deals. 

REC Limited and Power Finance Corporation have soared up to 10 per cent each in the last 30 days on the NSE. While others like Shriram Finance, SBI Life and Bajaj Finserv hiked in the range of 1-3 per cent during this period. 

Among the financial services sector analysts at different brokerages have handpicked a few stocks that may have an upside up to 25 per cent in one year. 

 

Here are 3 such stocks recommended by analysts:

SBI Life Insurance:  The company recently announced its March quarter results for financial year 2023-24 (Q4FY24), according to brokerages the company maintained its sectoral outperformance in FY24 with a volume growth of 17 per cent, and value of new business growth (9 per cent), core return on embedded value (RoEV) at 21.8 per cent.

The company posted a 4.3 per cent year-on-year (YoY) increase in profit for the quarter ending March 2024, amounting to Rs 811 crore compared to Rs 777 crore reported in the corresponding quarter of the previous fiscal year. Additionally, net premium income in Q4 surged by 26 per cent YoY to reach Rs 25,116 crore.

Those at ICICI Securities, said that the company’s distribution capacity both in bancassurance as well as other channels is allowing better access in beyond tier-1 locations, leading to volume outperformance. 

Customer penetration within the SBI network remains in low single digits. Basis management guidance, product pipeline and lower opex, the company can show better margins in FY25, analysts said. 

ICICI Securities maintained its ‘BUY’ rating for SBI Life Insurance with a target price of Rs 1,795. 

On Thursday, the share price of the company was trading 1.65 per cent higher at Rs 1,460 per share on the BSE. The stock is trading at price to earnings (PE) multiple of 75.97 times. 

Shriram Finance: Shriram Finance recently reported a notable 57 per cent year-on-year surge in its consolidated net profit for Q4 of FY23-24, reaching Rs 2,021.28 crore, a significant increase from Rs 1,288.18 crore in the previous year. This growth is attributed to increased income and improved asset quality.

According to analysts, the financial services firm reported over 16 per return on equity (RoE) in Q4FY24. This they said is the evidence of Shriram Transport Finance (STFC) and Shriram City Union Finance (SCUF) successful merger that led to one of the largest distribution networks in the industry. 

The merged entity now has over 3,000 branches serving around 8 million customers through a wide array of product offerings. 

With early signs of merger synergies forming a strong premise, coupled with higher scope for cross-selling – management aims to outpace industry growth rate by 20-25 per cent on a steady-state basis. 

Likely operating leverage over the next 4-6 quarters, steady NIM and credit cost at 9 per cent and 2 per cent in FY24-26E is likely to keep RoE strong at 16-18 per cent, analysts at ICICI Securities wrote in a report. The brokerage gave Shriram Finance a ‘Buy’ rating with an unchanged target price of Rs 2,930. 

Shriram Finance was trading 0.96 per cent at Rs 2573 per share on the BSE in Thursday’s intraday deals. The stock is presently trading at a PE multiple of 29.75 times. 

PNB Housing Finance: According analysts to at Motilal Oswal, the company’s management aims to improve yields by catering to Prime, Roshni and Emerging Market customer verticals and targets to bring down its cost of business by engaging with banks for lower spreads on MCLR loans and effectively tapping debt markets on the back of a credit rating upgrade to AA+ from all its credit rating agencies. 

PNB Housing Finance on Monday reported a 57 per cent jump in its net profit to Rs 444 crore in the fourth quarter ended March 2024. The housing finance company had posted a net profit of Rs 283 crore in the same quarter a year earlier.

Total income during the quarter rose to Rs 1,806 crore from Rs 1,628 crore in the same quarter of the previous fiscal, PNB Housing Finance said in a regulatory filing.

Motilal Oswal in a report said that PNB Housing Finance continued to guide for credit costs of 30 basis, excluding any recoveries from the written-off corporate and retail loans.  The brokerage said that it backs management’s ability to deliver an improvement in the return on assets (RoA) profile predicated on a visibility of healthy retail loan CAGR trajectory of 17 per cent from FY25 onward, NIM improvement through levers on CoB, and normalisation to steady-state credit costs of 25 basis points. 

“We expect PNBHF to deliver a CAGR of 17 per cent to 23 per cent in asset under management (AUM) over FY24-FY26 and a growth of 2.4 per cent and 13 in return on assets and return on equity in FY26. Motilal Oswal maintained its ‘Buy’ rating with a revised TP of Rs 1,015,”  Abhijit Tibrewal, Nitin Aggarwal and Gautam Rawtani of Motilal Oswal wrote in a recent report.

The stock of the company was trading 0.83 per cent higher at Rs 802.85 a piece on the BSE in Thursday’s intraday trade. The stock is currently trading at a PE multiple of 14.44 times.