Shriram Finance: 15%+ EPS growth & 15% AUM growth CAGR for FY24-26 at a PE of 11
India's largest retail NBFC is delivering ahead of management guidance and available for reasonable valuations
1. Largest retail NBFC in India with a leadership position in preowned commercial vehicle finance
shriramfinance.in | NSE : SHRIRAMFIN
Shriram Finance Limited; erstwhile Shriram Transport Finance Company Limited, is a non-banking financial company (NBFC). In Nov-22, Shriram City Union Finance Company Limited and Shriram Capital Limited were merged with Shriram Transport Finance. Shriram Transport Finance was then renamed Shriram Finance Limited.
Shriram Finance Limited enjoys a leadership position in preowned commercial vehicle finance.
As of June 30, 2023, its consolidated AUM stood at Rs. 1.932 lakh crore, comprising pre-owned CV finance (50%), PV loans (19%), CE (8%), farm equipment (2%), SME lending (10%), personal loans (4%), gold loans (3%) and two-wheeler loans (5%).
2. FY23: First financial year as Shriram Finance Limited
At the conclusion of Financial Year 2023, the merger of both Shriram Transport Finance and Shriram City Union Finance stand completed.
The corresponding previous year figures are not comparable, as the effective date for the merger is 1st April 2022.
3. Q1-24: AUM growth higher than the guidance
Bottom-line (PAT & EPS) growing faster than top-line (Net Interest Income)
5. Outlook for 15%+ EPS growth for FY24-26
i. 15% AUM growth CAGR for FY24-26
guidance for three years 15% AUM growth will continue
ii. Possibility of AUM growth for FY24 increasing to 18-19%
See, as of now, we will stick to 15% guidance, but coming to the end of the second quarter, we'll be able to clearly say what is likely growth for the full year, because we would like to see the monsoon coverage fully and see how the rural economy shapes up and that will help us to give a concrete number. But as you indicated, this 18%-19% is something in the first quarter is a good sign and we can expect these numbers to be maintained for the full year.
iii. EPS to grow at 15%+ CAGR for FY24-26 if AUM growth is 15%
The focus will be to improve on the net profits bottom line rather than the top line growth.
6. 15%+ EPS growth for FY24-26 at a 11 PE
7. So Wait and Watch
If I hold the stock then one can hold on as SHRIRAMFIN has delivered 19% AUM growth in Q1-24 ahead of its guidance of 15%. This has opened up the possibility of the AUM guidance to be increased for FY24. One needs to wait and watch for quarterly results to see if the company is delivering on the FY24-26 AUM growth and profitability as guided by the management.
8. Or, join the ride
If I am looking to enter the stock then
For the growth it has delivered in Q1-24, the PE of 11 looks attractive against the management guidance of 15% AUM growth.
15%+ EPS growth for a PE of 11 also makes valuations quite attractive.
Possibility of SHRIRAMFIN delivering ahead of the 15% AUM growth guidance in FY24. Possibility of 20%+ earnings growth if AUM growth is 18-19% for FY24
At a book value of Rs 1198 the stock is available at price to book (P/B) of 1.6 which is reasonable for India’s largest retail NBFC.
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Disclaimer
It is an analysis of the company data and not a stock recommendation
My analysis can be completely wrong and can change the next minute based on changes in my understanding of the company
I look to own good companies at prices where there is a path to market beating returns over decades