Steady Q4; Navigating growth amid macro headwinds…
About the stock: Shriram Finance (SHF) is large financier with a strong rural presence engaged in credit solution for commercial vehicles, two-wheeler, car loans, home loans, gold loans and small business.
• As of March 2026, SHF has a huge presence with 3,225 branches across India and employee count of 76,241, customer base of ~97.3 lakhs.
Q4FY26 performance: Shriram Finance reported steady performance, with growth supported by continued traction in vehicle finance and stable rural demand. AUM increased 14.9% YoY to ₹3.02 lakh crore. Margins were stable QoQ at 8.61% supported by a gradual decline in borrowing cost. Operating performance remained healthy, with credit cost at ~1.7%, resulting in 40.9% YoY growth in PAT to ₹3,014 crore. Asset quality remained broadly stable, with GNPA at 4.58%.
Investment Rationale
• Growth trajectory positioned to accelerate through FY27-28E: Growth outlook remains resilient with management reiterating ~18% AUM expansion, implying continued market share gains supported by strong rural franchise and customer retention. Completion of MUFG equity infusion and improving funding profile should support competitive pricing and improved retention. Incremental growth is expected to be driven by increasing share of new vehicle financing and calibrated expansion in secured MSME lending, while gold loans remain additional high-growth lever on a smaller base. However, near-term visibility remains tempered amid macro uncertainties including fuel price volatility, monsoon variability and geopolitical risks, indicating H2FY27 being monitorable.
• Funding cost tailwinds to support margins: Margins remain resilient with NIM at 8.61% and guided ~8.5%, reflecting a conservative stance despite funding tailwinds. Cost of liabilities has begun to decline (8.59% in Q4 vs 8.69% in Q3), with ~100 bps reduction expected over the medium term supported by rating upgrades and MUFG infusion, although benefits will be partly passed on. Margin are poised for structural improvement amid liquidity normalization and deployment of recently raised equity capital.
• Stable asset quality with emerging macro risks; RoA set to improve: Asset quality remains broadly stable with GS3 at 4.58% and credit cost at ~1.7%, reflecting resilience of the secured retail portfolio despite marginal uptick in early delinquencies. Management indicated no structural stress, with MSME exposures remaining controlled and largely secured, although a cautious stance persists amid external uncertainties. Improving funding profile and operating leverage are expected to support gradual RoA expansion ahead.
Rating and Target Price
• Continued steady growth and margin tailwinds are expected to support earnings trajectory. Factoring in healthy book accretion, we maintain our valuation multiple at ~2.2x FY28E BV, and target price of ₹1,200. Maintain Buy rating.
