Buy Shriram Finance: target of Rs 1225: ICICI Securities

Moneycontrol • 6 days ago

Original source

Key Investment Pillars

  • Strong core operating performance: Shriram Finance's (SFL) Q2FY27 results showed robust AUM growth of 17% YoY, with NIM expanding 48bps QoQ to 9.52% and a >250bps QoQ reduction in cost-income ratio to 22.5%.
  • Diversification and growth: SFL is expanding its presence in the MSME segment, with a focus on pan-India growth, and aims to increase the gold loan share in AUM to ~5% in the next 3 years.
  • Asset quality and credit cost: While credit cost rose to 2.03% of total assets, management expects it to normalize after a temporary increase due to drought-related stress in select geographies.
  • Margin and funding: NIM is expected to moderate to ~9% in the medium term, with a rising share of lower-yielding new vehicle loans and a higher interest rate environment.

Thesis Validation Checklist

  • AUM growth: Monitor SFL's ability to achieve its revised AUM growth guidance of 15-17% for FY27.
  • Credit cost: Watch for any further increases in credit cost and the impact of drought-related stress on asset quality.
  • NIM: Track the moderation of NIM to ~9% in the medium term and the effect of a rising interest rate environment.
  • MSME and gold loan growth: Monitor the growth of SFL's MSME and gold loan segments, which are expected to drive diversification and expansion.