Shriram Finance's 1:5 Stock Split: A Game Changer for Investors?
Shriram Finance Ltd, one of India’s largest NBFCs (Non-Banking Financial Companies), is set to undergo its first-ever stock split this week. The company announced a 1:5 stock split, which means one equity share will be subdivided into five smaller shares. This strategic move will make the stock more affordable, attracting new investors while benefiting existing shareholders.
The stock split will officially take effect on January 10, 2025, which is also the record date for shareholders eligible for the subdivision. Here's why this development is creating a buzz in the market and why analysts are recommending a “Buy” for Shriram Finance.
Why is Shriram Finance Splitting Its Stock?
A stock split is a corporate action aimed at improving a stock's liquidity and making it more accessible to retail investors. Shriram Finance is subdividing its equity shares from the face value of ₹10 each to ₹2 each. The goal is to enhance affordability and encourage participation from a broader investor base.
Performance Snapshot of Shriram Finance
- Current Price: ₹2898.15 (as of January 8, 2025)
- Market Cap: ₹1,08,987.47 crore
- 52-Week High: ₹3,652.15
- 52-Week Low: ₹2,137.65
- 1-Year Performance: Positive growth of 34%
- 1-Month Performance: A slight correction with a 6.5% dip
Why Should You Buy Shriram Finance Shares?
Leading brokerage Axis Securities has a Buy rating on Shriram Finance, with a target price of ₹3,825. This represents a potential 32% upside from the current market price. Here’s why analysts are optimistic:
1. Dominance in Used CV Financing
Shriram Finance has steadily grown its market share in the used commercial vehicle (CV) segment, currently holding about 30% market share, compared to 12-13% fifteen years ago. The company sees immense opportunities in this segment, with a potential market size of ₹1,800 billion driven by replacement demand for trucks and expected GDP-linked freight growth.
2. Portfolio Diversification Post-Merger
The merger of Shriram Transport Finance (SHTF) and Shriram City Union Finance (SCUF) has diversified the company’s offerings. Beyond CV financing, Shriram Finance now provides gold loans, MSME loans, two-wheeler loans, and personal loans. This diversification reduces dependency on CV financing and positions the company for more stable growth.
3. Steady Asset Quality
Shriram Finance has maintained better asset quality compared to its peers. It also has no exposure to risky microfinance institutions (MFI), ensuring the stability of its loan portfolio.
4. Strong Growth Prospects
Axis Securities projects a 17% CAGR AUM growth for Shriram Finance between FY24 and FY27, driven by the non-CV segment. This reflects the company’s ability to capitalize on opportunities across diverse lending portfolios.
5. Healthy RoA and RoE Delivery
Shriram Finance enjoys a competitive advantage in its operational efficiency. Its focus on retail deposits, securitization, and rural markets contributes to healthy returns on assets (RoA) and equity (RoE).
What Does the Stock Split Mean for Investors?
Stock splits do not change a company's intrinsic value, but they can significantly boost investor sentiment. By making the shares more affordable, Shriram Finance’s 1:5 stock split could drive higher trading volumes and attract retail investors.
For existing shareholders, this move increases the number of shares they own, while the value per share decreases proportionally.
Is Shriram Finance a Good Investment?
Given its dominant position in the used-CV segment, diversified portfolio, strong asset quality, and growth prospects, Shriram Finance stands out as a promising investment. The stock split further sweetens the deal by improving accessibility.
With a target price of ₹3,825 set by Axis Securities, the stock presents a compelling case for investors looking for long-term gains.
Conclusion
Shriram Finance’s 1:5 stock split is a significant event that aligns with the company’s strategy to enhance investor participation and sustain growth momentum. The company’s solid fundamentals and diversified portfolio make it an attractive option for investors, even as the market adjusts to this change.
Whether you’re a seasoned investor or just starting, keeping an eye on Shriram Finance could be a smart move in 2025.
Reference from:- https://www.goodreturns.in/personal-finance/1-share-to-split-into-5-shares-buy-nbfc-stock-shriram-finance-ahead-of-1-5-sub-division-1398237.html