Target: ₹1,675

CMP: ₹1,293

Shriram Finance will emerge as the second-largest retail-focused NBFC in India, post-merger of Shriram Transport Finance and Shriram City Union Finance.

A new business structure encouraging entrepreneurship, diversified-product bouquet, coupled with a favorable business environment will support growth momentum. With limited medium-term visibility on product mix, we continue to model mid-teen RoEs.

The merger between Shriram group companies is almost complete. Shriram City Union Finance (SCUF) has already been delisted and we expect STFC to trade as merged Shriram Finance over the next few days. Our FV of STFC (Rs1,675/share) already reflects the impact of the merger.

At our RGM-based FV, we value the core business at –1.35X book and add ₹67/share (2.5X book) as value of Shriram Housing Finance.

Shriram’s new business structure will likely encourage its business managers to focus more on regional businesses. This will augur well for personal/consumption and enterprise loans as compared to loans to pan-India CV operators.

Shriram group’s long track record, unparalleled franchise in the below-prime segments and diversified and granular businesses across the country are key positives. On the other hand, effective execution in the new business structure remains the key monitorable.

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