Buy Shriram Finance Ltd For Target Rs. Rs 2,800 - Centrum Broking Ltd
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Merger synergies visible as AUM growth scales up
Shriram reported AUM of Rs 2.14 tn, up 21% YoY and 6% QoQ. Disbursements for 3QFY24 stood at Rs 377.9bn, up 29% YoY and 9% QoQ (9M growth of 28% YoY). Strong growth was witnessed in PV/MSME/2W/Gold/PL which grew 31%/31%/22%/33%/65% YoY. Our calculation suggests that erstwhile Shriram Transport portfolio increased by 17% YoY, largely driven by growth in PV segment as against 13% YoY growth in CV AUM. Cross-sell of PV, 2W, Gold Loans and PL across branches has led to scale up in AUM growth. Company has large network of 3062 branches and 700 rural centres.
NIMs expansion surprise positively resulting in higher growth in operating profit
NIMs (reported) expanded 6bps QoQ to 8.99%. Cost of funds (calc) declined 20bps QoQ to 8.65%. Incremental CoB for 3QFY24 stood at 8.95% as against 8.7% in 2QFY24. Post circular on increase in risk weights, few banks have increased rates and other banks will also increase on incremental borrowings. However, management remains confident of maintaining NIMs at 8.9% through change in product mix and its ability to pass on rate hikes. NIMs expansion led to NII growth of 7% QoQ as against 6% QoQ growth in AUM. Opex remained under control and increased 5% QoQ resulting in C/I ratio of 29.3% as against 29.6% in 2QFY24. Operating profit grew 6% QoQ to Rs 36.9bn driven by strong NII growth and controlled opex.
Asset Quality continues to improve; write-offs below long term trends
Credit costs at 2.4% of AUM was higher than management guidance of 2% for FY24. This was largely driven by increase in provisions while write-offs remained at 1.5% of opening AUM. Stage 2 and Stage 3 assets stood at 7.0%/5.7% as against 9.3%/ 6.3% in 3QFY23 and 7.2% /5.8% and in 2QFY24. Stage 3 PCR improved to 53.4% (up 2.7p.p. YoY) while total PCR Stage 3 assets increased to 6.2% (up 6bps YoY). Stage 3 assets improved/remained stable across products (QoQ) barring PV where it increased marginally by 14bps QoQ to 5.4%
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