Shriram Finance and Radico Khaitan: Weekly Recommendations

The two stocks recommended by SMC Global Securities’ Research Team this week are Shriram Finance and Radico Khaitan. These two stocks have shown great potential with positive financial estimates for the next two financial years. So, let’s go through the details of the two stock recommendations for the period between December 9, 2024 and December 13, 2024.

Shriram Finance Limited

Shriram Finance share price was at ₹3,118.65 (as on December 6, 2024) and its target price is set at ₹3,577 with an upside potential of 15%.

Shriram Finance Limited: Investment Rationale

• Shriram Finance is India’s largest retail asset financing non-banking finance company (NBFC). It is the flagship company of the Shriram group, which has a significant presence in Consumer Finance, Life Insurance, General Insurance, Housing Finance, Stock Broking, and Distribution businesses.

• Net interest income grew 16.36% to ₹5,606.7 crores in Q2 FY25 as against ₹4,818.2 crores recorded in the same period a year ago. Net interest margin reduced to 8.74% in Q2 FY25 as compared to 8.93% registered in Q2 FY24.
• The company has also maintained strong and steady loan growth at 20% at end September 2024. Moreover, total assets under management climbed 19.94% to ₹2,43,042.55 crores as compared to ₹2,02,640.96 crores as on 30 September 2023. The management of the company has maintained the AUM guidance at 15% for FY2025, while it expects to grow faster than expectations.

• The commercial vehicle loan book increased by 14% YoY to ₹1,12,194 crores, passenger vehicles by 23% to ₹49,000 crores, construction equipment by 17% to ₹17,638 crores, farm equipment by 28% to ₹4,468 crores, MSME 52% to ₹32,300 crores, two-wheelers 26% to ₹13,089 crores, gold 12% to ₹6,080 crores and personal loans 12% to ₹6,080 crores end September 2024 over September 2023.
• Segment-wise, the management of the company expects 12% growth in the truck segment, above 20% in MSME, and 15-18% in two-wheelers in FY2025.
• Recently, the company signed an agreement to sell a stake in Shriram Housing Finance to Warburg Pincus for a total deal value of ₹4,630 crores. The regulatory approvals are expected by the end of Q3FY25. The gains from the stake sale would help to improve the capital adequacy ratio by 80 bps.
• The gross stage 3 assets ratio declined to 5.32% at end September 2024 vs 5.39% in end of June 2024 and the Net NPA ratio eased to 2.64% at end September 2024 vs 2.71% in end of June 2024. The company has maintained the provision coverage ratio at 51.7% at end September 2024 as against 51.15% in June 2024.
• The liquidity coverage ratio was at 234.61% as on 30 September 2024 as against 291.19% as of 30 September 2023. The cost-to-income ratio improved to 27.95% in Q2 FY25 from 27.34% reported in Q2 FY24.
• The firm’s Return on Assets (ROA) and Return on Equity (ROE) stood at 3.06% and 16%, respectively in the quarter ended 30 September 2024.

Shriram Finance Limited: Shareholding Pattern

Promoter’s shareholding is highest in the Shriram Finance Limited at 53.44%.

Shriram Finance Limited: Valuation

The company is well capitalized with adequate liquidity buffers for future growth. Its core loan products have delivered exceptional performance, driving its growth in AUM, branch network expansion, and its sustained investments in Digital Transformation, which are now yielding tangible results. Thus, it is expected that the stock will see a price target of ₹3,577 in 8 to 10 months’ time frame on 1 year’s average P/BV of 2.10x and FY26 BVPS of ₹1,703.12.

Shriram Finance Limited: Risk

• Decline in asset quality
• Economic slowdown

Radico Khaitan Limited

Radico Khaitan share price was at ₹2,343.30 (as on December 6, 2024) and its target price is set at ₹2,958 with an upside potential of 26%.

Radico Khaitan Limited: Investment Rationale

• Radico Khaitan is among the largest manufacturers of Indian Made Foreign Liquor (“IMFL”) in India. The Company’s brand portfolio includes Magic Moments and Verve Vodka, Morpheus and Morpheus Blue Brandy, 8 PM and 8 PM Premium Black Whisky, Rampur Indian Single Malt, Jaisalmer Indian Craft Gin, 1965 Spirit of Victory Rum, After Dark Whisky, Contessa Rum and Old Admiral Brandy. The Company also has a strong presence in the CSD market, serving the Indian Armed Forces. It has a total owned capacity of 320 million litres and operates 43 bottling units (5 owned, 29 contract and 9 royalty bottling units). It is also one of the largest exporters of alcoholic beverages from India, with brands available in over 102 countries.

• In Q2FY2025, revenue grew by 20.7% to ₹1,116.3 crores. EBITDA was up by 34.7% to ₹162.4 crores. EBITDA margin improved to 14.5% from 13% same period last year led by price increases and continued premiumization. PAT was up by 33% to ₹81.6 crores.

• To further expand its luxury portfolio, it introduced Rampur Indian Single Malt, Barrel Blush. This new expression initially matured in an American Bourbon barrel and finished in an Australian Shiraz wine cask, is a testament to tradition and expert craftsmanship. It will be a core expression along with Rampur Double Cask and Asava. With an international launch in the U.S., U.K., and Europe this year, it plans to bring it to India next year.
• It launched a new campaign for Royal Ranthambore whiskey featuring Saif Ali Khan. His signature style and charisma perfectly aligned with the nobility and glamor that this Royal Ranthambore represents. This campaign marks a significant moment in its journey to redefine luxury in the Indian spirits market.
• Taking its packaging innovation further with consumer choice and preference at the core, the company has recently introduced a trendy and convenient pocket pack in 180 ml SKU for Magic Moments. It expects this to support the strong brand growth momentum.
• According to the management, premiumization is ongoing and the premium brands and semi-luxury brands are spread across India. The product mix has improved. The Luxury segment and Semi-Luxury segment are doing very well. The segment contribution has increased to double-digits in the topline therefore the margin improvement trajectory will continue.

Radico Khaitan Limited: Shareholding Pattern

In the overall shareholding of Radico Khaitan Limited, promoters have the highest shareholding of 40.24%.

Radico Khaitan Limited: Valuation

The company is focusing on innovation and strengthening its premium brands. The company expects 15-18% volume growth in the P&A segment for FY25 on the back of continued strong demand for flagship brands like Magic Moments Vodka, Royal Ranthambore, and After Dark Premium Whisky. With input cost pressure easing, it expects to deliver steady profitable growth going forward. Thus, it is expected that the stock will see a price target of ₹2,982 in 8 to 10 months’ time frame on current P/BV of 12.23x and FY26 BVPS of ₹241.83.

Radico Khaitan Limited: Risk

• Regulatory risks
• Economic slowdown

Conclusion

These two stocks, one from the finance sector and the other from the breweries and distilleries sector can reach their target price in the coming 8 to 10 months. But it is always better if you do your analysis before investing and set a stop loss target. To keep track of your invested stocks, open demat account with SMC Global Securities and invest on the go.

Reference:
https://www.smctradeonline.com/research/wise-money/241

Author: All Content is verified by SMC Global Securities.