Shriram’s 1Q11 profits were up 76% YoY (17% above CIRA) with the key highlights being healthy asset growth and a sharp increase in net interest margins. Asset quality has stabilized and there is enough capital for growth, which we believe is likely to remain healthy medium term. Fee incomes were flat YoY and were the only disappointment during the quarter. Overall it was a strong quarter and reflects the sweet spot for Shriram.
Shriram’s NIMs increased 180bps YoY (+40bps QoQ) to 825bps, due to a) additional capital infusion, b) shift in asset mix and c) better liability management. Management expects some NIMs pressure, but confident of maintaining them between 7-8% levels. Fee income was flat YoY, a slight disappointment; management however retains its 40-50% growth guidance for FY11. We expect earnings growth to remain healthy, though moderate slightly due to higher base effects going forward.
Shriram operates in a niche lending segment, growth remains healthy and its return ratios are strong (close to 30% ROEs currently). However, it is exposed to
overall economic and interest rate environment, the stock has outperformed 154% in the last 12 months and could consolidate at current levels.
FY 11 and FY 12 EPS expected - 50 and 58.9
