Target: ₹1,700

CMP: ₹1,379.80

The lending business of the Shriram Group, re-christened ‘Shriram Finance’ (SHFL), post the merger of Shriram Transport Finance (SHTF) and Shriram City Union Finance (SCUF), was listed on the exchanges with effect from December 20.

SHFL is a diversified, retail-financing play, with AUM of ₹1.7-lakh crore and presence across the lower-than-prime lending spectrum, spanning across CV/CE and two-wheeler financing, small-business finance, gold loans and the fast-growing affordable-housing business (housed within its HFC subsidiary, Shriram Housing Finance - SHFC).

We estimate SHFL’s AUM to grow at 14-15 per cent over FY22-25, driven by two factors: Vehicle Finance, which constitutes two-thirds of the portfolio, is expected to benefit from the current CV upcycle; Improved cross-sell opportunities for the erstwhile SCUF products over the much-enlarged SHFL distribution network.

We have a BUY rating on the stock, with a rolled over Dec-23 TP of ₹1,700 (earlier ₹1,610), arrived at using the sum-of-the-parts methodology, valuing: Shriram Finance (standalone) at ₹1,600/share using the excess return on equity (ERE) method, which implies a Dec-24E P/BVPS of 1.24x; Shriram Housing Finance at ₹101/share, assigning a multiple of 2.6x to the Dec-24E BVPS.

Key risks to our estimates: challenges in integration of product lines/culture across businesses.