Shriram Finance Ltd, an NBFC giant, is going to split for the first time in the ratio of 1:2 this week. This will mean that one equity share of Shriram Finance is going to be subdivided into 5 small shares, becoming cheaper for both new and existing investors. Ahead of the much-awaited sub-division of January 2025, the brokerage outlook is positive on Shriram Finance with a buy recommendation.
Shriram Finance Share Price:
On January 8, Shriram Finance stock dipped by 2.04% to end at Rs 2898.15 apiece on BSE, with a market cap of Rs 1,08,987.47 crore. Currently, the stock's 52-week high and low are at Rs 3,652.15 and Rs 2,137.65 apiece respectively.
In the 1 month, Shriram Finance stock has corrected significantly with a 6.5% dip so far. In a year, however, the performance is positive with an upside of 34% on BSE.
Shriram Finance Stock Split:
The company will carry a stock split of 1:5 ratio -- which means a sub-division of the face value of each Equity Share of the face value of Rs.10/- (Rupees Ten Only) each, fully paid up into 5 (five) Equity Shares of the face value of Rs.2/- (Rupees Two Only) each, fully paid up (Share Split Ratio), ranking pari-passu in all respects.
The record date to determine entitlement of Equity Shareholders for Sub-division/Split of the face value of Equity Shares of the Company is fixed on Friday, January 10, 2025.
Hence, January 10 is also the ex-date for Shriram's stock split.
BUY Shriram Finance Stock?
Axis Securities has initiated coverage on Shriram Finance Ltd (SFL) with a BUY recommendation and a target price of Rs 3,825/share, which signalled a nearly 32% potential upside.
The brokerage highlighted three key factors as to why one should invest in Shriram Finance stock. Here's what Axis Securities said:
1. Dominant Position in Used CV Financing; Market Share Gains Likely:
SFL has managed to improve its market share over the past 15 years to ~30% from 12-13%. In the coming decade, SFL expects to further improve its market share by 6-8%. This will be supported by (i)Underpenetration of organized players offering huge market opportunity, (ii) Financing opportunity of Rs 1,800 Bn triggered through replacement demand for 1.45 Mn new as well as pre-owned trucks, and (iii) Expectations of buoyant growth in freight capacity of 1.25x GDP growth.
The merger between e-SHTF and e-SCUF enabled the rechristened entity - SFL to diversify from the primary vehicle financing business into a retail-focused small-ticket size portfolio with the introduction of Gold Loans, 2-Wheeler Loans, MSME Loans, and Personal Loans. As a result, the share of the CV portfolio has declined to 46% in Sep'24 vs 52% in Sep'22. The portfolio diversification ensuing the merger would enable the merged entity to steer clear of the cyclicality of the CV financing business. Going forward, SFL's AUM mix is expected to remain largely stable with a marginal shift of 2-3% towards the non-vehicle segments.
Axis Securities expects SFL to deliver a strong ~17% CAGR AUM growth over FY24-27E, primarily driven by the non-CV segment.
3. Asset Quality to Remain Steady:
SFL remains better placed than its peers in terms of asset quality in the Personal loans portfolio. Additionally, it remains insulated with no exposure to the troubled MFI segment. The management has also indicated that there is no customer overlap with MFI customers in any of SFL's segments.
4. Healthy RoA/RoE Delivery to Continue:
Axis Securities expects SFL's NIM should find support from the company's diversified borrowing profile, with an emphasis on retail deposits and securitization to optimize the cost of funds (CoF). Similarly, SFL's domain expertise in the used-CV segment enables the company to enjoy pricing power. Its favourable geographical mix with a prominent presence in rural markets, optimal mix between NTC and ETC customers, and identification of better-yielding segments to drive AUM growth should help support yields.
Hence, on the valuation, Axis Securities said, "We initiate coverage on Shriram Finance (SFL) with a BUY recommendation. This is supported by a) Potential to improve market share in the used-CV segment, b) Reduced cyclicity with lower dependence on the CV portfolio, c) Diversification of portfolio ensuring healthy AUM growth, d) Steady Asset Quality with lower mix of unsecured loans and e) Potential to deliver healthy return ratios. We value the stock at 2.2x FY27E ABV (vs. its current valuations of 1.7x FY27E ABV) and arrive at a target price of Rs 3,825/share."
About Shriram Finance:
Shriram Finance is the country's one of the biggest retail NBFC offering credit solutions for commercial vehicles, two-wheeler loans, car loans, home loans, gold loans, personal and small business loans.
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