Synopsis: Shriram Finance, backed by MUFG’s stake purchase, is expected to deliver strong AUM and PAT growth, improving margins, funding costs, and efficiency. Motilal Oswal sees ~28% upside with a target of ₹1,175, driven by better capital strength, stable asset quality, and attractive valuation with long-term growth visibility.
The shares of a Large-cap company that specialises in retail financing, with a primary focus on commercial vehicle finance and credit solutions for underserved, semi-urban, and rural populations in India, are in focus after Motilal Oswal made a Buy coverage on it with a 28 percent upside potential.
With a market capitalization of Rs. 2,20,389.64 crores in the day’s trade, the shares of Shriram Finance Ltd rose by 3 percent, reaching a high of Rs. 944.00 per share compared to its previous closing price of Rs. 915.70 per share.
What Happened
Shriram Finance Ltd is engaged in retail financing, with a primary focus on commercial vehicle finance and credit solutions for underserved, semi-urban, and rural populations in India. Motilal Oswal maintains a Buy target price of Rs. 1,175, implying about 28 percent upside from the previous close price of Rs. 915.70.
Reason for the Target
Strong AUM & PAT Growth Visibility
SHFL is expected to deliver ~17% AUM CAGR and ~26% PAT CAGR over FY26–FY28E, driven by diversified retail lending. Strong demand in vehicle finance, MSME, and gold loans supports consistent earnings momentum, improving franchise quality and reinforcing long-term growth visibility across rural and semi-urban credit markets.
MUFG Partnership Strengthens Capital Base
The strategic ~20% stake acquisition by MUFG (~USD 4.4b infusion) significantly strengthens SHFL’s capital adequacy and funding profile. This improves growth capacity, enhances global access to capital markets, and supports technology and treasury capabilities, enabling sustainable expansion without compromising financial discipline or risk management framework.
Improving Cost of Funds & NIM Expansion
Borrowing costs are expected to decline by ~1pp over 2–3 years due to better credit profile and MUFG backing. This supports stable-to-improving NIMs of ~8.8–9.0%, driving earnings expansion. Lower funding costs combined with strong pricing power improve profitability resilience across lending cycles.
Operating Leverage & Efficiency Gains
Cost-to-income ratio is projected to improve from ~30% in FY26 to ~26–27% by FY28E. Branch productivity, cross-selling, and multi-product distribution enhance operating leverage. Controlled expense growth relative to income expansion strengthens profitability, making earnings more scalable as business volumes grow steadily.
Stable Asset Quality with Controlled Credit Costs
Asset quality remains stable with stress viewed as temporary rather than structural. Credit costs are expected to be below 2% with gradual moderation as secured lending increases. Strong provisioning discipline and rural demand resilience reduce downside risk, ensuring earnings stability even during macroeconomic or sector-specific disruptions.
Attractive Valuation with Sustainable RoE
SHFL is valued at ~2.2x FY28E BVPS with expected RoE of ~13% and RoA of ~3.8%. Despite strong growth, valuation remains reasonable given long-term compounding visibility. A combination of steady earnings growth, improving balance sheet strength, and stable returns justifies the BUY target of Rs. 1175.
Financials & Others
The company’s revenue rose by 9.25 percent from Rs. 11,454 crores in March 2025 to Rs. 12,513 crores in March 2026. Meanwhile, Net profit rose from Rs. 2,144 crores to Rs. 3,021 crores in the same period.
The company shows a moderate return on capital employed (ROCE) of 11.5% and a stronger return on equity (ROE) of 16.4%, indicating decent efficiency in using shareholder funds and reasonable overall profitability. The gap between ROCE and ROE also suggests that the use of financial leverage is contributing to returns for equity holders.
It has delivered strong earnings growth with a 5-year profit CAGR of 32%, reflecting consistent expansion in earnings over time. Alongside this, a healthy dividend payout ratio of 20.9% indicates the company is balancing reinvestment for growth while still rewarding shareholders.
Shriram Finance Limited is one of India’s leading non-banking financial companies (NBFCs), primarily focused on retail lending. It is part of the Shriram Group and mainly provides loans for commercial vehicles, passenger vehicles, MSMEs, and two-wheelers, along with financing for small businesses and used vehicles. The company is known for catering to small transport operators and underserved credit customers in semi-urban and rural areas.
Conclusion: Motilal Oswal’s BUY target of Rs. 1,175 implies meaningful upside from current levels, driven by improving fundamentals rather than short-term sentiment alone. The MUFG stake acquisition strengthens Shriram Finance’s capital base, reduces funding costs, and expands its ability to scale lending profitably across underserved segments, which supports a potential re-rating of the stock.
At the same time, the business outlook shows sustained growth in AUM and earnings, with improving margins, stable asset quality, and operating leverage kicking in over FY26–FY28. When combined with attractive valuations relative to expected RoE expansion, the market may begin to price in higher compounding potential.
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