Emkay Global Bullish On Large Cap NBFC Stock, Sees Shares Soaring: Buy Call Assigned

Leading brokerage firm Emkay Global has assigned buy rating to NBFC Sector stock, Shriram Finance Ltd with a target price of Rs 1700. Investors will get 27% potential return if they buy the stock at the current market price of Rs 1353 apiece. The company has a market capitalisation of Rs 36,622 crore. Check key takeaways belo

1. Shriram Finance Stock Performance & Return

The last trading price of the stock is Rs 1353 apiece with an intraday gain of 4%. The stock's 52-week high is Rs 1509 apiece and 52-week low is Rs 1002 apiece, respectively. The stock has given a return of 17% in last 3-years, 15% in last 1-year, and 15% in last 3-months.

2. Birth Of A Diversified Retail Consumer Play

The lending business of the Shriram Group, re-christened ‘Shriram Finance' (SHFL), post the merger of Shriram Transport Finance (SHTF) and Shriram City Union Finance (SCUF), was listed on the exchanges with effect from 20 December, 2022.

SHFL is a diversified, retail-financing play, with AUM of ~Rs1.7Tn and presence across the lower-than-prime lending spectrum, spanning across CV/CE and two-wheeler financing, small-business finance, gold loans and the fast-growing affordable-housing business (housed within its HFC subsidiary, Shriram Housing Finance - SHFC).

3. Utilization Of Merged Distribution Network Offers Growth Opportunity

SHFL holds a consolidated AUM across vehicle loans and small-business loans as well an impressive, fast-growing, affordable-housing portfolio. As of Sep-22 (Exhibit 5), CVs constituted ~56% of the SHFL portfolio, followed by ~17% for passenger vehicles and ~10% for SME loans. Housing loans (originated at SHFC) accounted for ~4% of the overall portfolio.

Access to the combined Shriram network of 2,875 branches across the country (Exhibit 11) will help to leverage cross-sell opportunities such as expanding the gold loan, small-business loan and affordable-housing loan offerings to the erstwhile SHTF branches. Coupled with this, the ongoing CV upcycle provides strong tailwinds to the CV financing business.

4. Valuation

According to Emkay Global, "We have a BUY rating on the stock, with a rolled over Dec-23E TP of Rs1,700 (earlier Rs1,610), arrived at using the sum-of-the-parts methodology, valuing: i) Shriram Finance (standalone) at Rs1,600/share using the excess return on equity (ERE) method, which implies a Dec-24E P/BVPS of 1.24x; ii) Shriram Housing Finance at Rs101/share, assigning a multiple of 2.6x to the Dec-24E BVPS. Key risks to our estimates: challenges in integration of product lines/culture across businesses."

5. About Shriram Finance

Shriram Finance is the flagship company of the Group which provides financial services such as commercial vehicle finance, passenger vehicle finance, SME finance and retail lending (personal loans, gold loans and two-wheeler loans).

Disclaimer

The stock has been picked from the brokerage report of Emkay Global. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.

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