Merger bound Shriram Finance to emerge as second largest retail NBFC: Kotak Institutional Equities

New Delhi: Kotak Institutional Equities (KIE) remains positive on Shriram Transport Finance Company Limited (STFCL), which now will be known as Shriram Finance Limited (SFL).
The company, in its regulatory filing with exchanges on Thursday, said it has changed its name to Limited from Limited from November 30.
In its report, Kotak Institutional Equities said Shriram Finance will emerge as the second-largest retail-focused NBFC in India post merger with other two group entities.
Shriram Capital Limited (SCL), the holding company of the Shriram Group, and Shriram City Union Finance are being merged with Shriram Transport Finance, and the company will now be named as Shriram Finance.
The merger among Shriram group companies is almost complete. Shriram City Union Finance (SCUF) has already been delisted and the stock will be merged soon.
A new business structure encouraging entrepreneurship, diversified-product bouquet, coupled with a favorable business environment will support growth momentum, said Kotak in its report.

“With limited medium-term visibility on product mix, we continue to model mid-teen RoEs,” it added, retaining a ‘buy’ rating on the stock with a target price of Rs 1,675, which is about 30% higher than its previous close of Rs 1,289.
The combined entity will have about 5.3% of AUM of the total market share and the contribution of commercial vehicles will reduce substantially to 56% from 74%, the brokerage said. ” ROE is likely to stabilize around 15%.”
Shriram’s new business structure will likely encourage its business managers to focus more on regional businesses. This will augur well for personal and enterprise loans as compared to loans to pan-India CV operators, said KIE.
The company also expects rating upgrade and finer funding costs from lenders and has guided for 10% improvement in profitability over the next three years, the report added.
“Housing finance, though small, is a fast growth business. Coupled with undemanding valuations, we retain buy rating on the stock,” said Kotak Institutional Equities.
Another brokerage firm had a ‘buy’ call on the company with a target price of Rs 1,420 as The stock has broken the previous swing high. It had suggested to keep a stop loss at Rs 1,298.

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