Shriram Finance Shares Tumbles over 5% Amid Margin Pressure and Asset Quality Concerns

Shriram Finance reported a standalone net profit of ₹605.11 crore for the March quarter, a modest increase of 2% year-on-year (YoY). However, the market's focus remained firmly on the declining net interest margins (NIMs) and the unexpected deterioration in asset quality, both of which weighed heavily on sentiment. Shares of Shriram Finance Ltd. witnessed a steep decline of nearly 5% on Monday, following the company's announcement of its Q4 FY25 financial results.  Currently, the stock is trading at ₹627.90, with a decline of -4.17%

Quarterly Financial Snapshot

The company saw interest income climb by 19% year-on-year to ₹10,790 crore, up from ₹9,077 crore. Interest expense rose more sharply, increasing by 31% to ₹5,224 crore compared to ₹3,988 crore. Consequently, net interest income posted a more modest 9% gain, reaching ₹5,566 crore from ₹5,089 crore. Operating profit grew by 11% to ₹4,335 crore. However, provisions saw a significant uptick, rising by 24% year-on-year to ₹1,563 crore from ₹1,261 crore. The reported profit after tax (PAT) for the quarter stood at ₹2,144 crore, a 7% increase from ₹2,009 crore in the same period last year.

Return on assets declined marginally to 2.87% from 2.88% quarter-on-quarter (QoQ), while net interest margin narrowed to 8.25% from 8.48% QoQ, reflecting pressure on profitability. However, asset quality showed improvement, with gross NPA reducing to 4.55% from 5.38% and net NPA easing slightly to 2.64% from 2.68% QoQ. Capital adequacy stood at 20.66%, slightly lower than 21% in the previous quarter. Meanwhile, assets under management (AUM) recorded robust growth, rising 17% year-on-year to ₹2.63 lakh crore from ₹2.24 lakh crore.

Margin Compression Raises Alarms

Shriram Finance's Net Interest Margins (NIMs) contracted by 23 basis points to 7.7%, primarily due to excess liquidity on the balance sheet and a shift towards lower-yielding assets, which dampened profitability. While the liquidity build-up was intended to support future disbursement growth, it negatively impacted margins, disappointing investors seeking sustained earnings momentum. The decline in NIMs, along with flat sequential growth in net profit, highlights the challenge of balancing growth ambitions with margin preservation.

Asset Quality Deterioration Adds to Pressure

Further compounding the stock's woes was the deterioration in asset quality metrics. Gross non-performing assets (GNPA) rose by 30 basis points sequentially to 6.77%, while net NPAs also saw an uptick. This trend was partly attributed to a large write-off taken during the quarter as part of the company's portfolio clean-up strategy. Concerns have emerged over the increase in slippages, with rising GNPA levels potentially leading to higher credit costs in the coming quarters, further pressuring profitability. While management remains optimistic about recovery prospects, the visible strain on asset quality introduces new uncertainty.

Outlook

Shriram Finance’s Q4 results have shifted market attention away from its profitability growth towards operational risks that could weigh on future earnings. While strategic liquidity management and portfolio clean-up efforts underscore prudence, the immediate financial impact has introduced a more cautious tone around the stock. As a result, Shriram Finance may face a period of consolidation until there is greater clarity on margin stabilisation and asset quality recovery.

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