Shriram Finance Q2 Review: Company Defied Sluggish Industry Growth With Strong Quarter, Says Nuvama

Shriram Finance Ltd. extended its strong quarterly performance and remained the top pick in a relatively weak sector, Nuvama Institutional Equities said as it upped its target price.

Shriram Finance reported a year-on-year increase in total income of 18%, reaching Rs 10,097 crore in the second quarter, compared to Rs 8,564 crore in the previous year. The company's net profit also saw a significant rise of 20.2%, amounting to Rs 2,153 crore, up from Rs 1,792 crore.

The non-banking financial company reported positive earnings with strong asset under management growth, stable net interest margin with lower incremental cost of finances along with strong asset quality, Nuvama said. This has been a key investor focus for BFSI stocks in the second quarter, the brokerage said.

"In a quarter when many lenders are missing credit costs, the company stands out for its strong all-round performance."

The brokerage maintained the 'buy' rating and increased the target price to Rs 3,600 per share from Rs 3,400 apiece earlier, implying an upside of 16.5% from the previous close.

Asset quality in commercial vehicles remains strong due to firm resale values of used vehicles and higher prices of new vehicles and stable fuel prices, it said. Slowdown in the commercial vehicle cycle and tight liquidity leading to higher cost of finance are the key downside risks, Nuvama said.

The assets under management growth in micro, small, and medium enterprises segment will remain stronger compared to other segments, Motilal Oswal said in a note. It said that the execution is better than vehicle finance peers.

However, the brokerage noted a minor NIM compression because of a decline in higher-yielding products like gold loans and personal loans. The NBFC is yet to fully utilise its distribution network for non-vehicle products, the Motilal Oswal said.

The financier is eyeing improved operating metrics through effectively leveraging cross-selling opportunities to reach new customers and introducing new products, it said. Motilal Oswal reiterated its 'buy' rating with a target price of Rs 4,000 apiece, a potential upside of 29% from the previous close.

Shriram Finance's stock has risen 63% during the last 12 months and has advanced by 50% on a year-to-date basis.

Forty of the 41 analysts tracking the company have a 'buy' rating on the stock, and one has a 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 18%.