This stock may enter Nifty in 2024. Analysts see up to 21% upside potential

Shriram Finance Ltd, whose shares are up 43 per cent year-to-date, has good probability of replacing UPL Ltd as Nifty constituent in the March 2024 index rejig, Nuvama Institutional Equities suggested. Analysts are largely bullish on this stock post Q2 results, thanks to the NBFC's strong growth in asset under management, its high yielding segments and an uptick in margins. Their share price targets suggest up to 21 per cent further upside ahead for the stock.

The Shriram Finance management is positive on the growth path and expects AUM growth and margins to sustain going ahead. "It is also marching towards technological development by launch of various digital initiatives and also partnering with fintech companies such as Paytm to widen its reach and provide superior user experience. We expect NII/PAT to grow at a CAGR of 16 per cent/24 per cent over FY23-25E," Religare Securities said while suggesting a target of Rs 2,196 on the stock.

HDFC Institutional Equities said Shriram Finance continues to seek ways to improve its cross-sell value proposition between customers and products of the erstwhile franchises (SCUF and SHTF), which remains an important monitorable to assess the efficacy of the merger. This brokerage finds the Shriram Finance stock worth Rs 2,145.

Centrum Broking said Shriram Finance may to report 16 per cent compounded annual growth (CAGR) each in asset under management, net interest income and profit after tax over FY23-26. This, it said, should result in 3 per cent-plus return on asset (RoA) and 16 per cent return on equity (RoE) by FY26E.

It values Shriram Finance's standalone business at 1.7 times H1FY26E price to adjusted book value (ABV) of Rs 2,300 and HFC at 3 times H1FY26E price to ABV of Rs 100, after accounting 20 per cent Holding company discount to arrive at a target of Rs 2,400.

YES Securities has maintained its 'Buy' call on the stock and said it prefers Shriram Finance in the vehicle finance space. It said investors would closely monitor pricing and volume growth in used CV/PV segment, distribution roll-out of GL and MSME loans in vehicle financing branches and success in cross-sell, and emerging signs of stress in PL and MSME Loan portfolio.

"Our earnings estimate for FY24/25 get upgraded by 2 per cent/5 per cent as we factor higher growth and a higher NIM delivery. Shriram Finance, the merged entity, is a multi[1]product play having synergistic growth at disposal. We expect 16 per cent AUM CAGR and 21 per cent earnings CAGR over FY23-25 with average RoA/RoE delivery of 3.3 per cent/16 per cent.

The stock’s valuation is reasonable at 1.4 times P/ABV and 7.7 times P/E on FY25 estimates. We retain BUY with an upgraded 12-month target of Rs 2,400 and Shriram Finance," YES Securities said.

Nuvama, meanwhile, has retained its target of Rs 2,145. The management is confident of the strong growth and a moderate decline in NIM. Its CEO reiterated the share of personal loans would be capped at 5 per cent, the brokerage said.

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