Buy Shriram Finance; target of Rs 1155: Motilal Oswal

Moneycontrol • 6 days ago

Original source

Key Investment Pillars

  • Strong disbursement growth: Shriram Finance's disbursements grew 25% YoY to INR541b in 2QFY27, driven by a 26% YoY growth in MSME disbursements.
  • Improving NIM: The company's reported NIM improved ~50bp QoQ to ~9.52% in 2QFY27, driven by utilization of equity proceeds.
  • Cautious asset quality outlook: Shriram Finance's asset quality was stable, but the company remains cautious due to weak monsoons and West Asia-related uncertainty.
  • Cost discipline: The company's cost-to-income ratio improved to 22.52% from 27.76% YoY, partly reflecting normalization of staff costs.

Thesis Validation Checklist

  • Monitor AUM growth: Watch for AUM growth to remain strong, driven by MSME and gold loan segments.
  • Track NIM trends: Monitor NIM to remain stable, driven by improving yields and stable funding costs.
  • Asset quality trends: Closely watch asset quality, particularly in drought-affected regions, and the impact of seasonal stress on credit costs.
  • Opex/AUM ratio: Monitor the company's ability to maintain its opex/AUM ratio near 2.5%, despite potential pressure from additional technology spending.