Synopsis : Motilal Oswal remains bullish on Shriram Finance, citing strong growth catalysts including the landmark MUFG investment, lower funding costs, rural market expansion and leadership in vehicle financing. The brokerage expects robust earnings growth and has maintained a ‘Buy’ rating with a target price implying 29% upside potential.
Shares of Shriram Finance traded lower in early deals, but brokerage firm Motilal Oswal continues to maintain a positive outlook on the leading Non-Banking Financial Company (NBFC). The brokerage has reiterated its ‘Buy’ rating on the stock with a target price of Rs.1,175, indicating a potential upside of nearly 29% from current levels.
According to Motilal Oswal, Shriram Finance is entering a new growth phase backed by a stronger balance sheet, diversified lending portfolio and improving profitability metrics. The brokerage highlighted five major factors supporting its bullish stance on the stock.
- 1. MUFG Partnership Strengthens Growth Prospects
One of the biggest catalysts for Shriram Finance is its strategic partnership with Japanese banking giant Mitsubishi UFJ Financial Group (MUFG). The deal involves MUFG acquiring nearly a 20% stake through a capital infusion of approximately $4.4 billion.
Motilal Oswal described the transaction as a transformational milestone that significantly strengthens the company’s capital base. The enhanced financial flexibility is expected to support faster loan book expansion and improve long-term growth visibility.
The brokerage believes the company’s Assets Under Management (AUM) growth could accelerate to 18-20% over the medium term, compared to its historical growth rate of around 15-16%.
- 2. Rural and Semi-Urban Markets Offer Massive Opportunity
Shriram Finance continues to focus on expanding its presence in rural and semi-urban regions across India, particularly in northern, central and eastern states.
Rather than aggressively targeting metropolitan markets, the company aims to deepen its penetration in underserved geographies where demand for credit remains strong. This strategy is expected to support sustainable loan growth while strengthening customer relationships and market share.
- 3. Vehicle Finance Remains a Core Strength
Vehicle financing continues to be the backbone of Shriram Finance’s business model. The company maintains a leadership position in used vehicle financing while steadily increasing its presence in the new vehicle loan segment.
Motilal Oswal noted that vehicle finance remains a key earnings driver due to the company’s strong distribution network and deep understanding of borrower segments. In addition, Shriram Finance is expanding into MSME lending and gold loans, creating new growth avenues and enhancing diversification.
Gold loans, in particular, are emerging as a promising segment supported by branch expansion and cross-selling opportunities.
- 4. Lower Funding Costs Could Boost Profitability
Another significant trigger identified by the brokerage is the expected decline in borrowing costs over the next few years.
Management expects funding costs to reduce by nearly one percentage point over the next two to three years. This could help support Net Interest Margins (NIMs), which are expected to remain stable in the 8.5% to 9% range.
A favorable loan portfolio mix combined with lower cost of funds is likely to improve profitability and strengthen operating performance going forward.
- 5. Stable Asset Quality Provides Confidence
While asset quality remains an important factor to monitor, Motilal Oswal believes recent stress in the loan book is largely linked to temporary cash flow disruptions rather than structural weaknesses.
The brokerage highlighted that Shriram Finance’s asset quality trends remain stable, supported by a growing secured loan portfolio and improving customer retention. As the share of secured lending increases, credit costs are expected to moderate gradually, further supporting earnings growth.
- Growth Outlook Remains Strong
Looking ahead, Motilal Oswal expects Shriram Finance to benefit from healthy loan growth, stronger operating leverage and lower funding costs. The brokerage projects an AUM CAGR of around 17% and a Profit After Tax CAGR of nearly 26% between FY26 and FY28.
With multiple growth drivers in place and valuation comfort at current levels, the brokerage believes Shriram Finance remains one of the preferred picks within the NBFC sector.
Disclaimer : This article is for informational purposes only and does not constitute investment advice. Investors should consult a SEBI-registered financial advisor before making any investment decisions.
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