Buy Shriram Finance Ltd for the Target Rs 1,200 by Emkay Global Financial Services Ltd
SHFL reported satisfactory performance in 1QFY27, with healthy profitability, margins, and operating efficiency, while AUM grew by 15.26% yoy to Rs3.14trn. The management indicated that despite macro risks (uneven monsoons and geopolitical tensions), underlying vehicle demand remains robust. For 2Q, the management expects steady 15-16% AUM growth, with the intent to reassess its full-year ~18% guidance. Growth will be driven by customer retention, higher new vehicle penetration, and accelerated growth in non-vehicle segments like gold loans and MSME. Overall margin improved to 9.04%, while the management expects it to be broadly steady in the near term, and remain above ~8.5% as the company passes on some CoF benefits to accelerate growth. Asset quality remained stable, with GS3 and NS3 assets at 4.64% and 2.33%, respectively. Operationally, despite plans to add ~150 branches in FY27, the management expects opex to be stable, as higher volumes absorb costs. Factoring in the 1Q performance, we tweak our FY27-29 estimates marginally, resulting in EPS estimates expanding by 1-2% in FY28/FY29. We retain BUY and Jun-27E TP of Rs1,200, implying FY28E PBV of 2.1x.
A good start to FY27
SHFL reported a strong 1QFY27, with PAT surging ~59.8% yoy to Rs34.45bn, primarily driven by strong income and stable credit cost. AUM growth remained healthy at 15.26% yoy and 3.81% qoq, reaching Rs3.14trn. Margins expanded, with NIM improving to 9.04% (up from 8.61% in 4QFY26), while operating efficiency remained strong, with cost-to-income ratio at 25.48% (compared to 29.29% in 1QFY26). Overall asset quality was stable, with GS3/NS3 at 4.64%/2.33%, respectively. Following the recent capital infusion, total CRAR strengthened to 34.17%, which diluted ROE to 12.76% (down from 18.73% in 4QFY26), even as ROA expanded by 30bps qoq to reach 3.93%.
Reiterates growth outlook, while staying mindful of macro uncertainties
The management maintains a constructive outlook on its ~18% growth target, and will reassess this post-2Q to gauge the impact of uneven monsoons on rural demand. Growth will be driven by customer retention, rising new vehicle penetration, and an accelerated scale-up in gold loans and MSME. Margins are anticipated to be broadly stable in the near term, before normalizing to organic steady-state levels, as the company passes on CoF benefits to capture market share. Opex is expected to remain well-managed, with branch expansion costs fully absorbed by higher business volumes. SHFL remains confident on its portfolio health, expecting asset quality to stay resilient and credit costs to remain strictly rangebound. The recent capital infusion significantly strengthened the balance sheet (CRAR at 34.17%, debt-equity at 2.14x), providing a strong growth runway.
We retain BUY and Jun-27E TP of Rs1,200
Factoring in the recent performance and outlook, we tweak our FY27-29 estimates (Exhibit 2). We retain BUY with an unchanged Jun-27E TP of Rs1,200, implying FY28E P/B of 2.1x.
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