Shriram Finance Target Price Upgrades Follow Strong Loan, Profit Growth

Nomura retains its fiscal 2025 earnings estimates for Shriram Finance, while Jefferies recommends valuing the company higher.

Source: Shriram Housing Finance website

Brokerages have upgraded Shriram Finance Ltd.'s target price due to robust loan and profit growth in the current fiscal years.

Nomura expects the non-banking financial company to do well in fiscal 2025 especially when other NBFCs are facing trouble with loan and profit growth. Jefferies, on the other hand, recommends valuing the company higher than usual due to its more consistent earnings growth, better asset quality, and stronger return outlook.

Nomura retained its fiscal 2025 and 2025 earnings estimates for Shriram Finance. The brokerage anticipates that assets under management and earnings per share for the non-bank lender will grow by 16% and 20% per year from fiscal 2024 to fiscal 2026, respectively. Nomura also predicts an average return on assets of 3.4% and a return on equity of 17% for fiscal 2025 and fiscal 2026.

Nomura maintained a 'buy' rating and raised the target price to Rs 3,500 apiece from Rs 3,300 earlier, implying a 20% upside against the previous closing price.

Shriram Finance recently added 170 branches for MSME loans, taking the total to 720. It plans to open 250 more branches in the next two years, said Jefferies.

For gold loans, they plan to double the current number by adding 500 new branches, it said. Brokerage also expects the loan growth to stay strong at 18% in fiscal 2025 and continue at a 17% annual growth rate from fiscal 2024 to fiscal 2027, according to Jefferies.

The brokerage recommends buying the stock, with the target price of Rs 3,475 per share, raised from Rs 2,950, and marking an upside of 19%.

Morgan Stanley raised the target price of Shriram Finance to Rs 3,660 per share from Rs 3,325 apiece. This provides a good safety margin since stocks with a 17-18% return on equity can be valued at 2.5-3.0 times book value if they show consistent performance, the note said.

While the stock's value has risen a lot from its previous lows, it still has room to grow, according to the brokerage. After seeing encouraging results for the first quarter of fiscal 2025, Morgan Stanley has updated its valuation and sees good potential for further gains.

The NBFC looks like a strong large-cap and easily traded Nifty stock. It has good return on equity, steady growth, reasonable valuation, and strong past performance, it said.

Also Read: Shriram Finance Q1 Results: Profit Rises 18.6%, Total Income Up 20%

Loan Disbursements Growth

Loans for commercial vehicles and construction equipment made up 54% of the total loans, according to Jefferies. It grew by 15% from the previous year. Demand for used commercial vehicles remains steady, and their prices have increased by 10-12%, compared to a 20-25% rise last year.

Loans for personal vehicles and small businesses also grew strongly. However, gold loans and personal loans saw a decline from the previous quarter, said Jefferies.

In the used personal vehicle market, there is an increased demand for private vehicles as compared to public transport. There is an increased growth to upgrade two-wheelers to four-wheelers, said Jefferies.

Also Read: Shriram Finance - Growth, Asset Quality In Good Shape: Yes Securities

Shares of Shriram Finance is trading 0.20% higher at Rs 2,931.25 apiece at 10:33 a.m., compared to a 0.34% rise in the benchmark BSE Sensex.

Also Read: Shriram Finance Q1 Results: Profit Rises 18.6%, Total Income Up 20%

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WRITTEN BY
Sreshti Srinivasan
Sreshti Srinivasan covers markets and business news at NDTV Profit. She hol... more
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