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Shriram Finance Sees Significant Share Decline Post Q4 Results

On Monday, Shriram Finance experienced a notable drop in its share price, sliding by 8.5% to reach an intraday low of Rs 600 on the Bombay Stock Exchange (BSE). This decline followed the company’s announcement of its Q4 results for FY25, which, despite showcasing strong headline figures, fell short of market expectations regarding credit costs and Net Interest Margin (NIM) for the quarter ending March 2025.

Profitability Highlights and Yearly Growth

In terms of profitability, Shriram Finance reported a commendable 10% year-on-year (YoY) increase in standalone net profit, amounting to Rs 2,139 crore for the quarter. This was chiefly fueled by robust disbursement figures and a healthy increase in net interest income. In comparison, the net interest income (NII) observed a 13% growth, reaching Rs 6,051 crore compared to Rs 5,336 crore during the same period the previous year.

Total income for Q4 was recorded at Rs 11,460 crore, which signifies an increase from the Rs 9,498 crore reported a year earlier. Furthermore, revenue from operations rose impressively by 21% YoY, reaching Rs 11,454 crore, while fee and commission income more than doubled to an impressive Rs 331 crore.

Rising Costs and Profit Before Tax Surge

Despite facing increasing costs, profit before tax rose to a substantial Rs 12,606 crore. A significant contributor to this increase was a one-time gain of Rs 1,657 crore resulting from the sale of Shriram Housing Finance, now rebranded as Truhome Finance. CEO Arul Chakravarthi emphasized that this strong performance underscores the effectiveness of their lending model and disciplined risk management strategies. He stated: "We are focused on digital expansion and enhancing customer experience while continuing our leadership in rural and semi-urban lending."

In terms of loans, the company expanded its loan book to Rs 2.45 lakh crore from Rs 2.08 lakh crore in FY24. Fortunately, asset quality remained stable as well, with gross Non-Performing Assets (NPA) at 4.55% and net NPA at 2.64%. The capital adequacy ratio is commendably positioned at 20.66%, exceeding regulatory requirements.

Expert Analysis from Nuvama on Shriram Finance

Nuvama, a market analysis firm, has upheld a ‘Buy’ rating for Shriram Finance, while increasing the target price to Rs 760 from Rs 720. Although the company posted strong headline numbers, it still missed estimates regarding credit cost and Net Interest Margin (NIM) for Q4FY25.

The shortfall in NIM has been attributed to an oversupply of liquidity, which was reported at Rs 300 billion, contrasting with a normalized figure of Rs 190 billion. Consequently, NIM fell by 23 basis points quarter-on-quarter and by 49 basis points over the last two quarters, resulting in flat NII on a sequential basis. Meanwhile, credit costs shot up by 18% QoQ to 2.4% of Assets Under Management (AUM). The rise in stressed loans and credit costs can be linked to less-than-expected improvements in asset quality during Q4, a quarter that typically shows strong seasonal performance.

Management’s Future Guidance

Looking forward, the management has projected an improvement in NIM to between 8.5% to 8.6% for FY26E, anticipating a 15% growth in AUM. They do not foresee any significant increases in stress or credit costs for FY26E. However, odds are that near-term price performance might remain muted.

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Final Thoughts

While Shriram Finance has demonstrated resilience through its strong profitability metrics and solid loan growth, the pressures of rising credit costs and missed NIM estimates present challenges for the immediate future. With expert analyses suggesting a cautious outlook, employing tools like the AI legalese decoder could be crucial for effective legal navigation in an increasingly complicated financial environment.

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