Shriram Finance Shares Plummet to 11-Month Low Amid Growth Downgrade
On October 26, Shriram Finance's stock hit an 11-month low following a reduction in its loan growth forecast and rising credit costs.
Shriram Finance shares fell by 6.13% to Rs 810.20, marking an eighth consecutive decline.
The company revised its fiscal 2027 loan growth forecast down to 15%-17% due to adverse conditions.
Brokerages have adjusted target prices, with Jefferies lowering it to Rs 1,145 and JM Financial to Rs 1,025.
On October 26, Shriram Finance's stock experienced a significant drop, reaching an 11-month low as it became the top loser on the Nifty index. The decline of 6.13% brought the share price down to Rs 810.20, continuing a streak of losses that has persisted for eight consecutive sessions. This downturn was primarily driven by the company's announcement of a lowered annual loan growth forecast and concerns regarding escalating credit costs.
The financial institution has adjusted its assets under management growth forecast for the fiscal year 2027, reducing it from 18% to a new range of 15%-17%. This revision was attributed to unfavorable monsoon conditions and geopolitical uncertainties, which have created additional pressure on borrowers, particularly in drought-affected regions. As of 9:55 AM on October 26, shares were trading at Rs 829.6, reflecting a 4% decrease.
Analysts from Jefferies have indicated that credit costs may remain high for the next one to two quarters, particularly as stress levels rise in states like Maharashtra, Karnataka, and Telangana. Although Jefferies maintained a 'buy' rating on the stock, it revised its target price downward from Rs 1,210 to Rs 1,145. Similarly, Motilal Oswal highlighted that increased slippages and write-offs are indicative of drought-like conditions in several states, while overall asset quality has remained stable.
Concerns regarding early-stage delinquencies and the impact of drought on rural borrowers have been raised by JM Financial, which also retained a 'buy' rating but lowered its target price from Rs 1,175 to Rs 1,025. The brokerage noted that while asset quality indicators are deteriorating, the stock has already corrected by 14% over the past month. They also mentioned that Shriram Finance is relatively better positioned compared to other non-banking financial companies due to its lower insurance distribution income.
Despite the challenges, Shriram Finance reported a nearly 60% increase in its second-quarter profit, reaching Rs 3,677 crore, surpassing analyst expectations of Rs 3,546 crore. Looking ahead, the company faces significant hurdles due to the changing economic landscape, but its recent equity infusion and upgrades to its credit rating may provide some stability in the current rate hike environment.
