Shriram Finance share price targets revised upwards after investor call

Shriram Finance shares saw upside revisions in target prices a day after the NBFC hosted an investor call to provide further clarity and address investor queries regarding the proposed preferential allotment of a 20 per cent equity stake to MUFG Bank at Rs 840 per share for an aggregate consideration of $4.4 billion. 

Nirmal Bang upgraded Shriram Finance stock to 'Buy' from 'Hold' and upped its target to Rs 1,126 from Rs 812 earlier. The domestic brokerage  said it is factoring in capital strength, tailwinds of lower cost of funds, and rural focus along with stable asset quality metrics. 

The Shriram Finance management expects 100 basis points reduction in the cost of funds following the deal, as they expect a credit rating upgrade. It continued to re-iterate its focus to strengthen its vehicle portfolio by entering into higher ticket size loans and catering to repeat customers, thus expecting 18-20 per cent CAGR by FY31, at an exit ROA and ROE of 3.5-3.6 per cent and 19-20 per cent, respectively. 

MOFSL said while it had upgraded its EPS estimates earlier after the capital raise to reflect lower leverage and marginally higher growth assumptions, it has further fine-tuned forecasts to align more closely with the management’s guidance. 

"Accordingly, we raise our FY26/FY27 EPS estimates by 3 per cent each to reflect slightly higher growth, lower credit costs and lower CoF," MOFSL said.

MOFSL said Shriram Finance may deliver a PAT CAGR of 26 per cent over FY25-28E and RoA/RoE of 3.9 per cent/13.6 per cent by FY28. It maintained its 'Buy' rating on the stock with a revised target of Rs 1,180, based on 2.2 times March 2028 price to book value.

After the capital raise, leverage for Shriram Finance is expected to decline sharply from 4.3 times to 2.6 times, providing substantial balance sheet headroom. 

"Leverage is expected to gradually normalise as capital is deployed, with steady-state leverage guided at 4-5 times (optimal 4.5 times) over the next 5-6 years. Profitability is expected to remain healthy, with RoA guided at 3.6 per cent by FY31 and RoE expected to revert to pre-capital raise levels of 16-17 per cent as leverage normalises," MOFSL said.

Nirmal Bang said Shriram Finance  has emerged as a market leader for CV financing, targeting small fleet operators and that its presence across the southern market, and its aspiration to grow in Northern and Central India, aligns with the ROA targets and its strengths across the used vehicle segment. 

"Shriram Finance  continues to re-iterate its vision to focus on the vehicle business and expresses its aim to capture pan-India market share. Management has guided for a strong 18-20 per cent CAGR over the 5-year horizon and expects ROE to reach pre-dilution levels. We factor in the lower cost of funds and the balance sheet strength as the entire investment coming in one single payment, shall lead to stronger disbursement and AUM growth," it said.