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SHFL reported a good overall performance in Q2, with strong growth momentum in non-CV loans leading to a robust ~20% YoY and ~5% QoQ AUM growth to Rs 2,026bn. Favorable product mix and lower carry cost from liquid cash sprung a surprise on the NII front, but prudent write-off-led higher credit cost resulted in PAT coming in at Rs17.5bn, broadly in line with our estimate; asset quality continued to improve, with sequential decline in GS3/NS3. Overall, SHFL continues to deliver an impressive performance, with growth, profitability and asset quality coming in line with or better than Management guidance. To reflect the Q2 development, we have adjusted our FY24-26 estimates, resulting in a broadly unchanged EPS/BVPS. We reiterate our BUY on the stock, with Sep-24E TP of Rs 2,195/share (FY25E P/BV: 1.5x).

Delivers NII beat, slightly lower PAT on prudent write-off

SHFL delivered 22% YoY and 10% QoQ growth in calculated NII (6% better than our estimate), largely driven by asset-yield improvement on account of favorable product mix changes and reduced carry cost owing to reduction in excess liquid cash. However, at Rs17.5bn, PAT came in ~2% lower than our estimate on account of higher write-off (Rs 8.4bn) led credit cost of Rs 11.3bn. Asset quality continued to show improvement with GS3/NS3 reducing sequentially. Overall, the Q2 results mark another impressive quarter for SHFL, as regards performance delivery (Exhibit 2)

Investments in tech, employees and physical infra continue

The company continues to invest in technology, branch infra and employees for future growth and has not opted for short-term profit boost from the current strong NII. The company has added 5k employees in Q2 and will be adding another 1.5-2k employees in the next 6 months; this is expected to increase the sourcing flow. SHFL has introduced its ‘ShriramOne’ app, which would offer multiple products and is expected to increase customer engagement, ultimately leading to increased repeat customers and improved experience of existing customer. Company is also exploring/onboarding a fintech partnership, to extend credit to NTC and supply-chain finance. Its partnership with Paytm would see business commencing post completion of tech integration in the next 2 weeks. Going forward, Management maintains its guidance of 8.5% NIM and ~17-18% AUM growth for FY24. Given the developments in H1 and stable funding cost outlook ahead, the guidance appears to be slightly conservative

We reiterate BUY with largely unchanged estimates

We adjust our FY24-26 estimates to reflect Q2 developments. This results in a ~2-3% increase in AUM and PPOP; however, some minor adjustments in other income and credit cost mean that our PAT, EPS and BVPS estimates stay broadly unchanged. We roll forward our TP to Sep-24E, resulting in TP increasing to Rs2,195/share (from Jun-24E TP of Rs 2,135), thus implying FY25E P/BV of 1.5x. We reiterate our BUY, as a gradual re-rating of the stock should endure, as it continues to deliver improving performance on growth, profitability and asset quality (Exhibit 4 & 5).

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