On Monday, JPMorgan analyst updated their outlook on Shriram Finance Ltd (SHFL:IN), increasing the price target to INR 3,500 from INR 3,200. The firm continues to hold an Overweight rating on the stock. The revision follows Shriram Finance's second-quarter performance, which aligned with both JPMorgan's and consensus estimates.
The company reported a second-quarter profit after tax (PAT) of INR 20.7 billion, marking an 18% year-over-year increase. This growth was supported by a 16% rise in net interest income (NII) and a 15% increase in pre-provision operating profit (PPOP). Additionally, Shriram Finance's assets under management (AUM) grew by 20% compared to the previous year.
Shriram Finance's net interest margins (NIMs) also showed improvement, increasing by 7 basis points quarter-over-quarter. The firm experienced robust asset quality performance, with a decrease in gross stage 2 + 3 assets by 12 basis points sequentially. This trend was notable as it was in contrast to peers who saw deteriorations in asset quality. Net slippage rates and credit costs remained stable for Shriram Finance.
The return on assets (ROA) and return on equity (ROE) were sustained at strong levels of 3.5% and 16%, respectively, and there is potential for further improvement in the second half of the year, which is typically stronger. The capital ratios of the company are healthy, with Tier 1 capital at 19.4%. The sale of the housing subsidiary is expected to further strengthen these ratios.
The analyst highlighted the company's robust AUM growth, capital comfort, healthy return ratios, and stable asset quality trends as factors supporting a stronger case for better trading multiples in comparison to its current price-to-earnings (P/E) ratio of 11 times FY26 estimates and price-to-book (P/B) ratio of 1.8 times FY26 estimates. With a year-to-date performance already exceeding the Nifty Index by 40%, the analyst anticipates continued outperformance and reaffirms Shriram Finance as one of their key Overweight positions.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.