Shriram Finance Q1 results: Share price surges 3% as NBFC reports 12.55% net interest income growth

Shriram Finance's Q1 results show a 12.55% rise in net interest income to ₹6,026.43 crore and an 8.84% increase in profit after tax to ₹2,155.73 crore. The company's total assets under management increased by 16.62% to ₹2.72 trillion. Analysts at JM Financial and ICICI Securities maintain a "buy" rating for the stock, with a revised target price of ₹730, valuing the stock at 1.9x FY27E BVPS.

Shriram Finance Limited (SFL) has reported robust financial results for the first quarter of its fiscal year 2025-26, with a 12.55% increase in net interest income to ₹6,026.43 crore and an 8.84% rise in profit after tax to ₹2,155.73 crore. The company's total assets under management (AUM) surged by 16.62% to ₹2.72 trillion, reflecting its strong performance in the retail asset financing sector.

The company's net interest income grew significantly, driven by a 12.55% increase in net interest income to ₹6,026.43 crore, up from ₹5,354.47 crore in the previous year. This growth was accompanied by an 8.84% increase in profit after tax to ₹2,155.73 crore, from ₹1,980.59 crore in the corresponding quarter of the previous year. The company's total income also rose by 20.11% to ₹11,541.76 crore, indicating strong revenue growth.

The company's asset quality metrics showed improvement, with gross Stage 3 assets decreasing to 4.53% from 5.39% in the previous quarter. Net Stage 3 assets also decreased slightly to 2.57% from 2.71% year-on-year. The company's capital adequacy ratio remained strong at 20.79%, well above regulatory requirements.

Analysts at JM Financial and ICICI Securities have maintained a "buy" rating for Shriram Finance, with a revised target price of ₹730. This valuation reflects the company's strong performance and growth prospects. The analysts expect the company's return on assets (ROA) to be between 2.9% and 3.1% and its return on equity (ROE) to be between 15% and 16% in the coming years.

Despite the strong results, Shriram Finance faces challenges in maintaining its net interest margins (NIM) and managing its liquidity. The company's NIM declined by 14 basis points to 8.1% in the quarter, and there was a slight increase in Stage-2 loans, which rose by 40 basis points to 7.3%. However, the company's ability to manage these challenges and capitalize on growth opportunities will be crucial for its continued success.

In conclusion, Shriram Finance's strong Q1 results demonstrate the company's ability to generate growth and profitability in the non-banking financial sector. The company's well-diversified product portfolio and strong asset quality position it well to continue its growth trajectory. Analysts remain optimistic about the company's prospects, with a "buy" rating and a revised target price of ₹730.

References:
[1] https://scanx.trade/stock-market-news/earnings/shriram-finance-reports-8-8-profit-growth-amid-margin-pressure/15215947
[2] https://www.business-standard.com/markets/news/shriram-finance-rises-3-on-q1-results-should-you-buy-sell-or-hold-125072800255_1.html