Buy Shriram Finance; target of Rs 1200: Prabhudas Lilladher

Moneycontrol • 6 days ago

Original source

Key Investment Pillars

  • AUM growth: Shriram Finance is expected to deliver 17% AUM growth in FY27, driven by healthy growth across CV, PV, MSME, and Gold segments. The company has revised its FY27 AUM growth guidance to 15-17% from 18% earlier, citing geopolitical uncertainties and weak monsoon conditions.
  • NIM expansion: Reported NIM improved to 9.5% in Q2FY27, supported by lower incremental CoF and the recent capital infusion. However, NIM is expected to moderate over the medium term as fresh borrowings increase and the share of lower-yielding new vehicle loans rises.
  • Asset quality: Headline asset quality remained broadly stable, though rural stress on account of drought situation warrants monitoring. The company has factored in credit costs of 2.2%/2.0% for FY27E/FY28E.
  • Operating profitability: The cost-to-income ratio improved to 22.5% in Q2FY27, aided by the normalization of staff costs. Management expects it to remain at ~25% over the medium term as additional technology investments are likely to drag opex.

Thesis Validation Checklist

To validate the investment thesis, investors should watch for: AUM growth trajectory, NIM trends, asset quality, and operating profitability. Key signals to monitor include disbursement growth, yield on advances, credit costs, and cost-to-income ratio. A stable or improving trend in these metrics would support the 'BUY' recommendation, while a deterioration could challenge the thesis.