Shriram Finance shares fall despite strong Q4; analysts retain their optimism

Shares of Shriram Finance Ltd. are trading over 3% lower on Monday, April 27, despite the company reporting a strong set of March quarter earnings after market hours on Friday.

The non-banking financial company reported a 41% year-on-year (YoY) jump in net profit to ₹3,014 crore, while net interest income (NII) rose 21% to ₹6,751 crore, broadly in line with estimates.

The board has recommended a final dividend of ₹6 per share.

Asset quality remained largely stable, with gross non-performing assets (GNPA) at 4.58% compared to 4.54% in the previous quarter, while net non-performing assets (NNPA) improved to 2.33% from 2.38% sequentially.

Assets under management (AUM) stood at ₹3.02 lakh crore, growing 14.85% YoY and 3.62% QoQ, reflecting steady business expansion.

Growth was broad-based across segments. Commercial vehicles and passenger vehicles grew around 19% YoY each, while gold loans saw strong traction with nearly 37% growth. MSME lending remained relatively moderate, while construction equipment continued to be a drag, declining sharply both on a yearly and sequential basis.

Provision coverage ratio improved to 50.34%, offering comfort despite elevated GNPA levels, while capital adequacy remained healthy at 20.40%. Liquidity also stayed strong, with a liquidity coverage ratio of over 323%.

Management has guided for AUM growth of around 18% in FY27, with stronger momentum expected in passenger vehicles and gold loans. MSME growth is likely to remain measured, with a continued focus on asset quality.

Margins are expected to remain stable at around 8.5%, with limited scope for expansion as the company plans to pass on the benefit of lower cost of funds.

Operating expenses declined in the quarter, aided by lower discretionary spending and absence of one-offs. For FY27, opex growth is expected to remain in line with business growth.

On asset quality, the company expects stability in the near term, although it remains watchful of risks from fuel prices, inflation, and borrower affordability.

Managing Director Umesh Revankar said gradual price increases are preferable, as sharp hikes could impact demand, adding that MSME disbursements have been moderated with a cautious approach.

He also said that as long as GDP growth remains above 6.5%, the overall impact on the business should be manageable.