Shriram Finance: MUFG entry a meaningful strategic upgrade, Buy stock for 22% upside, says MOFSL
MOFSL said Shriram Finance's valuation has re-rated from around 1.5 times to 2.6 times FY26E price to book value (P/BV). Yet at around 1.9 times FY27E P/BV (post money), valuations stayed attractive, it said.
- Dec 22, 2025,
- Updated Dec 22, 2025 8:08 AM IST
Motilal Oswal Financial Services (MOFSL) reiterated its 'Buy' rating on Shriram Finance with a target price of Rs 1,100, based on two times March 2028 price-to-book value, despite the stock’s strong recent performance. The brokerage said the stock has risen around 35 per cent over the past two months and about 70 per cent since January 2025, when the brokerage identified as a top 2025 idea. It said further upside looks likely, as the NBFC entered a phase of stronger execution and profitability.
MOFSL noted that Shriram Finance's valuation has re-rated from around 1.5 times to 2.6 times FY26E price to book value (P/BV). Yet at around 1.9 times FY27E P/BV (post money), valuations stayed attractive for an expected profit growth of 25 per cent and return on asset (RoA) and return on equity (RoE) of around 3.8 per cent and 13.2 per cent, respectively, by FY28E.
"We view this transaction as a strategically significant and value-accretive development for SHFL," MOFSL said while expecting 22 per cent upside on the stock.
It said the board of Shriram Finance approved a preferential equity issuance of Rs 39,620 crore to MUFG Bank Ltd at an issue price of Rs 840.93 per share. Upon completion, MUFG is expected to hold around 20 per cent stake in the company on a fully diluted basis and be classified as a public shareholder. The brokerage viewed MUFG’s entry as a transformative milestone that materially strengthened Shriram Finance’s capital base and enhanced its credit credibility, helping de-risk the company’s growth trajectory while expanding its ability to serve a broader customer base across CV, MSME and retail segments.
MOFSL said MUFG’s long-term capital support is expected to accelerate growth in core businesses such as CV and MSME lending, improve funding access and potentially pave the way for a credit rating upgrade to AAA over time. It added that the presence of a strong global strategic partner could structurally lower the cost of funds, support balance-sheet resilience and unlock synergies in technology and customer engagement.
MOFSL said Shriram Finance has continued to deliver sector-leading performance, supported by diversified loan growth, a disciplined risk-management framework and sustained demand in the used-vehicle segment. Asset quality remained resilient despite short-lived disruptions from heavy rainfall in some regions, with 30-plus days past due levels holding steady over the past two quarters, unlike peers that saw a meaningful deterioration.
The brokerage said the operating environment had turned supportive, aided by a well-distributed monsoon, expectations of a healthy kharif harvest and improving rural income sentiment. It added that GST rate cuts on select vehicle categories had triggered a visible pickup in enquiries and disbursements across passenger vehicles, two-wheelers and small and light commercial vehicles from late September 2025, with momentum expected to continue through the second half of FY26.
MOFSL said net interest margins, which had remained under pressure due to elevated liquidity buffers, are now showing early signs of recovery as surplus liquidity normalised. It expected margins to expand in the second half of FY26 and further improve in FY27, supported by lower leverage following the equity infusion, gradual transmission of repo rate cuts and a favourable shift in product mix. It raised its FY26 and FY27 EPS estimates by around 10 per cent and 17 per cent, respectively.
Motilal Oswal Financial Services (MOFSL) reiterated its 'Buy' rating on Shriram Finance with a target price of Rs 1,100, based on two times March 2028 price-to-book value, despite the stock’s strong recent performance. The brokerage said the stock has risen around 35 per cent over the past two months and about 70 per cent since January 2025, when the brokerage identified as a top 2025 idea. It said further upside looks likely, as the NBFC entered a phase of stronger execution and profitability.
MOFSL noted that Shriram Finance's valuation has re-rated from around 1.5 times to 2.6 times FY26E price to book value (P/BV). Yet at around 1.9 times FY27E P/BV (post money), valuations stayed attractive for an expected profit growth of 25 per cent and return on asset (RoA) and return on equity (RoE) of around 3.8 per cent and 13.2 per cent, respectively, by FY28E.
"We view this transaction as a strategically significant and value-accretive development for SHFL," MOFSL said while expecting 22 per cent upside on the stock.
It said the board of Shriram Finance approved a preferential equity issuance of Rs 39,620 crore to MUFG Bank Ltd at an issue price of Rs 840.93 per share. Upon completion, MUFG is expected to hold around 20 per cent stake in the company on a fully diluted basis and be classified as a public shareholder. The brokerage viewed MUFG’s entry as a transformative milestone that materially strengthened Shriram Finance’s capital base and enhanced its credit credibility, helping de-risk the company’s growth trajectory while expanding its ability to serve a broader customer base across CV, MSME and retail segments.
MOFSL said MUFG’s long-term capital support is expected to accelerate growth in core businesses such as CV and MSME lending, improve funding access and potentially pave the way for a credit rating upgrade to AAA over time. It added that the presence of a strong global strategic partner could structurally lower the cost of funds, support balance-sheet resilience and unlock synergies in technology and customer engagement.
MOFSL said Shriram Finance has continued to deliver sector-leading performance, supported by diversified loan growth, a disciplined risk-management framework and sustained demand in the used-vehicle segment. Asset quality remained resilient despite short-lived disruptions from heavy rainfall in some regions, with 30-plus days past due levels holding steady over the past two quarters, unlike peers that saw a meaningful deterioration.
The brokerage said the operating environment had turned supportive, aided by a well-distributed monsoon, expectations of a healthy kharif harvest and improving rural income sentiment. It added that GST rate cuts on select vehicle categories had triggered a visible pickup in enquiries and disbursements across passenger vehicles, two-wheelers and small and light commercial vehicles from late September 2025, with momentum expected to continue through the second half of FY26.
MOFSL said net interest margins, which had remained under pressure due to elevated liquidity buffers, are now showing early signs of recovery as surplus liquidity normalised. It expected margins to expand in the second half of FY26 and further improve in FY27, supported by lower leverage following the equity infusion, gradual transmission of repo rate cuts and a favourable shift in product mix. It raised its FY26 and FY27 EPS estimates by around 10 per cent and 17 per cent, respectively.