Apr'25 View on Shriram Finance Ltd

Shriram Transport Finance Company Ltd is a part of the SHRIRAM Group conglomerate which has a significant presence in the financing business. STFC is engaged in the business of commercial vehicle financing mainly focusing on trucks from preowned to new ones. It's a Deposit-taking NBFC comprising 1,758 branches, 831 rural centers, and partnerships with ~500 private financiers. The stock looks poised to cross its previous high above 730 on back of following data Rationale: • Shriram Finance continued to report stable asset quality trends, albeit with marginal weakness in construction equipment. • We expect business trends to hold on linearly, while watching asset quality developments in select segments. • A diversified book, exposure to interior/rural India and a large ECL buffer on the balance sheet provide comfort. • Retain BUY and FV of Rs730. Q3FY25 Earnings Update: Positives: • AUM growth is at 18% yoy. • Spreads were stable qoq at 7.8%. • Co’s overall asset quality performance appears to be under control, with a 20 bps qoq rise in the gross stage-2+3 ratio. • Credit cost was stable qoq at 2.1% in 3QFY25. Negatives: • NIM compressed 22 bps qoq, likely due to higher liquidity on the balance sheet. • Operating expenses were up 22% yoy, leading to a rise in the cost-to-AAUM ratio to 3.0% (2.9% in 3QFY24).