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SHFL reported a good overall performance in Q3, with strong growth momentum in non-CV loans leading to a robust ~21% YoY and ~6% QoQ AUM growth to Rs2,142bn. Improving yields broadly offset the minor increase in borrowing cost, thus delivering NII in line with our expectations, but a prudent write-off and conservative provisioning-led higher credit cost resulted in PAT logging 4%/~3% below Consensus/our estimates, at Rs18.2bn. Asset quality continued to improve, with sequential decline in GS3/NS3. Overall, SHFL continues to deliver a decent performance, with growth, profitability and asset quality clocking in line with or better than Management guidance. To reflect the Q3 development, we have adjusted our FY24-26 estimates; however, our EPS/BVPS remains broadly unchanged. We reiterate our ADD rating on the stock, and revise Dec-24E TP to Rs2,550/share (FY25E P/BV: 1.7x).

Shriram Finance: Financial Snapshot (Standalone)

Decent performance with continuous calibrated growth

SHFL reported a decent performance in Q3FY24, with AUM growing 5.7% QoQ to Rs2,142bn and coming slightly above our estimates. Robust asset yields offset the slight increase in borrowing cost, leading to NII registering at Rs49.1bn, matching our estimates. However, PAT at Rs18.2bn was marginally below our estimates, primarily due to higher credit cost on account of a prudent write-off (Rs7.25bn) and incremental provisioning of Rs5.25bn. Management also indicated a marginal 4bps increase in PD, and the LGD on stage-2 increasing by 6bps. Management expects AUM to grow above 20% for full FY24. Asset quality continued to show improvement, with GS3/NS3 reducing sequentially to 5.66%/2.72%, by 13bps/8bps, respectively. (Exhibit 5)

Synergistic growth in non-vehicle segments to drive profitable growth

SHFL is leveraging its branch network of Shriram Transport and SCUF, to reach deeper pockets in multiple product segments (MSME, Gold, TWL, and PL). Company has introduced GL in 600 branches of Shriram Transport, and is expected to double this in FY25. Further, its eligible customer database for PL stands at 3mn and Company is seeing steady growth in that segment; however, it plans to keep growth at 20-25% here and limit exposure of PL at 6% of it book (though the Board has approved a limit of 8%), pointing to the management’s conscious and risk-calibrated growth approach in this segment. Overall, the management remains confident about delivering an over-15% AUM growth post FY24, with NIM holding up at current levels of ~8.9% and credit cost tracking ~2%.

We give a minor tweak to our estimates;

reiterate ADD We adjust our FY24-26 estimates to factor-in the Q3 developments. This results in very limited changes (-1% to 1%) to our key estimates for FY24-26. We reiterate our ADD rating on the stock, with revised Dec-24E TP of Rs2,550/share (FY25E P/B: 1.7x; TP nudged up from Rs2,450/share earlier). (Exhibits 2-4)

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