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Shiram Finance (SFL) reported a PAT of INR 19.8bn (+2% QoQ, +18% YoY) which was largely in line with our estimates, led by a) healthy AUM growth of (+3.8% QoQ, +21% YoY) at INR 2.33trn, b) steady NII of INR 53.5bn (+0.3% QoQ, +21% YoY) with NIMs at 8.8% (- 23bps QoQ) and c) stable asset quality. AUM growth was driven by MSME loans (+9.8% QoQ, +44% YoY) followed by Farm Equipments (+7.2% QoQ, +17% YoY) and passenger vehicles (+6.4% QoQ, 27% YoY). Credits costs was stable at 2.1% of AUM (vs 2.3% QoQ, 1.9% YoY) as headline asset quality remained largely steady with GS3/NS3 at 5.39%/2.63% (-6bps QoQ, flat QoQ). The consistent improvement in asset quality in last 2 years provides further comfort on credit costs as SFL’s PCR also remains sufficiently high at 51%. As mgmt plans to increase its MSME and gold presence across geographies, we believe it will aid in higher AUM growth and yields going forward. Shriram Housing reported a PAT of INR 483 mn (+6% YoY, -22% QoQ) and strong AUM growth of (+4.6% QoQ, +51% YoY). The company has entered into share purchase agreement to sell its stake in housing sub to Warburg Pincus which is expected to add INR 39bn to SFL’s capital aiding in +80bps rise in CRAR of the company. We believe SFL remains well-placed on growth (non-VF portfolio offers healthy growth visibility) and given its high share of secured portfolio (96%), makes it attractively placed given concerns on unsecured loans. In addition, SFL also carries significant provisions cushion on its balance sheet (total ECL provisions at 6.3% of AUM) and thus minimizing earnings risk from inadvertent shocks. We maintain BUY with a revised TP of INR 3,460 (valuing at 1.8x FY26E BVPS in return for avg RoA/RoE of 3.7%/17.7% for FY25E/26E

* Sustained growth momentum: AUM grew +3.8% QoQ/ +21% YoY to INR2.33trn driven by healthy disbursements of INR 377bn (+24% YoY,-4% QoQ). Growth in AUM was led by MSME loans (+9.8% QoQ, +44% YoY) followed by farm equipments (+16.5% QoQ, +7.2% YoY), passenger vehicles (+6.4% QoQ, 27% YoY), 2W (+2.8% QoQ, +29% YoY), CV (+2.6% QoQ,+14.4%YoY) and construction equipments (+0.5% QoQ, +17% YoY). Gold loans de-grew 2.8% QoQ due to <20k cash limit regulation, however, mgmt remains confident on increasing its gold book as they plan to add 150-200 GL branches per year and 175 MSME branches in next 2 years. This should aid in healthy loan growth from its small-ticket non-VF portfolio. We build in 19% AUM growth over FY24-26E.

* Steady operational performance: SFL reported a NII of INR 53.5bn (+21% YoY, 0.3% QoQ) led by slight reduction in NIMs of 8.8% (-23bps QoQ). This was largely due to decline in incremental CoB to 8.8% from 9% QoQ while yields remained stable QoQ at ~18%. Opex was steady at INR 15.7bn (+16% YoY, +1.3% QoQ) leading to inline PPoP of INR 38.5bn (+23% YoY, -1.3% QoQ). Provisions stood at INR 11.6bn (Credit costs at 2.1% of total AUM vs 2.3% QoQ and 1.% YoY) which led to a PAT of INR 19.8bn (+18% YoY, +2% QoQ). Management believes that CoFs would remain steady from here amd are now in sync with incremental CoFs while shorter tenure high-yield products (gold, 2W and PL) would continue to aid strong margin performance going forward. Management remains confident on sustaining NIMs at ~9% for the year FY25E.

* Improving asset quality metrics: Asset quality continues to improve sequentially with GS3/NS3 at 5.39%/2.63% (-6bps QoQ, flat QoQ). PCR on stage 3 assets remains healthy at 51%. Credit costs remained largely steady at 2.1% of AUM vs 2.3% QoQ of which write-offs amounted to ~INR 6bn (vs INR 8.1bn in Q4FY24). SFL also carries 3.5%+ provisions on stage 1 & 2 books which offers addition cushion on incremental credit costs if any. We build in an average credit cost of ~2% for FY25E/26E.

* Shriram Housing Finance – Strong growth, seasonally weak: The subsidiary – Shriram Housing reported steady headline parameters with PAT at INR 483mn (+6% YoY,-22% QoQ) largely due to Q1 being seasonally weak quarter for housing segment. The drag was largely due to higher credit costs of INR 170mn (12bps of AUM vs 10bps YoY). NII grew (+41% YoY, +25% QoQ) while opex grew (+51% YoY, +13% QoQ) which led PPoP to grow (+16% YoY, -7.3% QoQ). AUM growth was strong at INR 144bn (+4.6% QoQ, +51% YoY) which was led by HL (+6.1% QoQ, +45% YoY) followed by LAP (+3.3% QoQ, +64% YoY) and top up loans (+2.8% QoQ, +53% YoY). GS3/NS3 moved up +22bps QoQ, +14bps QoQ at 1.26%/0.94% while PCR remains healthy at 25%

* Valuation and view: We believe SFL remains well-placed on growth (non-VF portfolio offers healthy growth visibility) and given its high share of secured portfolio (96%), makes it attractively placed given concerns on unsecured loans. In addition, SFL also carries significant provisions cushion on its balance sheet (total ECL provisions at 6.3% of AUM) and thus minimizing earnings risk from inadvertent shocks. We maintain BUY with a revised TP of INR 3,460 (valuing at 1.8x FY26E BVPS in return for avg RoA/RoE of 3.7%/17.7% for FY25E/26E)

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