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Shriram Finance reports Q4 profit drop due to escalating costs
Shriram Finance experiences quarterly profit shortfall due to increased financing expenses
Shriram Finance, the non-banking finance company (NBFC), reported a lesser profit than forecasted for the fourth quarter ending March 31, 20XX. A significant increase in finance costs and other factors put a squeeze on the company's earnings, despite the Reserve Bank of India (RBI) easing some capital requirements.
The revenue jump for the period was 9.9% year-on-year to 21.39 billion rupees ($250.5 million), but it fell short of the analyst average of 22.24 billion rupees, according to LSEG data. Finance costs surged 31% in the quarter, the highest since the prior June 20XX, placing pressure on the company's net interest margin.
Analysts had hoped the RBI's relaxation of rules in February regarding risk weights for banks and NBFCs would reverse the credit growth slowdown, which occurred during the third quarter of the fiscal year 20XX. Yet, the pressure has persisted, with earnings growth expected to remain subdued due to measured asset growth expansion, increased credit costs, and operational expense pressures.
Shriram Finance's net interest income, the difference between interest earned on loans versus funds borrowed, increased 13.4% to 60.51 billion rupees. However, its net interest margin rose to 8.25% only, failing to recover from the March 20XX quarter's 9.02%. The company's assets under management increased by 17% to 2.63 trillion rupees, marking the slowest rise since the March 20XX-20XX quarter.
Unfortunately, Shriram Finance's share price ended the day 6% lower at 655.2 rupees following the profit announcement. Over the past month, the stock has dropped by 6%, and the past five days have seen a drop of 8%. These declines may be attributed to investor concerns over rising interest rates and tightened liquidity in the NBFC sector.
Interesting bits to know:
- The company's financial costs have been a major contributor to the underwhelming underlying profit growth.
- The one-time gain from the disinvestment of Shriram Housing Finance has partially masked the robustness of operational profit growth.
- Concerns about cost efficiency and the sustainability of profitability continue due to the company's expenses exceeding its income growth.
- Market sentiment remains cautious about the impact of rising interest rates and liquidity tightening on Shriram Finance.
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- The escalating finance costs and other factors have put pressure on Shriram Finance's profitability, causing the non-banking finance company to report a lower Q4 profit despite the Reserve Bank of India easing some capital requirements.
- The finance costs surged 31% in the quarter, causing a strain on Shriram Finance's net interest margin, contributing to the underwhelming underlying profit growth.
- Despite the hope that the RBI's relaxation of rules in February would reverse the credit growth slowdown, earnings growth is expected to remain subdued due to measured asset growth expansion, increased credit costs, and operational expense pressures.
- Shriram Finance's share price dropped 6% following the profit announcement, with concerns about rising interest rates and tightened liquidity in the NBFC sector contributing to the decline.
- Asset under management increased by 17% to 2.63 trillion rupees, marking the slowest rise since the March 20XX-20XX quarter, indicating a potential bottleneck in asset growth expansion.
- The one-time gain from the disinvestment of Shriram Housing Finance has partially masked the robustness of operational profit growth, and concerns about cost efficiency and the sustainability of profitability continue.
- For personal finance investors, monitoring the situation in the NBFC sector, particularly companies like Shriram Finance, is vital in making informed decisions concerning their investing business in 2023.
