Recommendation from Finance Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.[EasyDNNnews:PaidContentStart]

Shriram Finance Ltd : STRONGER BALANCE, ACCELERATING GROWTH

HERE IS WHY
✓ Strong Sector Tailwinds
✓ Commercial Vehicle Leadership
✓ Robust AUM Expansion

Non-Banking Financial Companies (NBFCs) are entering a phase of renewed momentum and strengthening credit expansion, supported by improved regulatory clarity and proactive measures by the RBI to enhance liquidity and credit flow. The assets under management (AUM) of NBFCs are expected to grow at a steady 18–19 per cent this fiscal and the next and surpass ₹50 lakh crore by March 31, 2027, according to a Crisil Ratings report. A key growth driver within the NBFC space is commercial vehicle financing. The Indian commercial vehicle finance market reached USD 79.52 billion in 2025 and is forecast to grow to USD 129.12 billion by 2030, reflecting a CAGR of 10.18 per cent. Considering this favourable structural backdrop, we recommend Shriram Finance Limited as our Choice Scrip for this issue.

Shriram Finance Limited is one of India’s largest retail-focused NBFCs, offering a wide range of credit solutions across vehicle finance, MSME lending, and consumer segments. It is part of the 50-year-old Shriram Group and was formed following the merger of Shriram Transport Finance Company Limited, Shriram City Union Finance Limited, and Shriram Capital Limited in November 2022, creating a diversified and scalable lending platform.

As of September 30, 2025, commercial vehicles form the largest share of its AUM at 45.55 per cent, followed by passenger vehicles at 21.17 per cent and MSME loans at 14.44 per cent. Construction equipment and twowheeler financing contribute 5.46 per cent and 5.53 per cent respectively, while the remaining 7.85 per cent comes from other lending segments.

Interest income stood at ₹11,825.2 crore, registering a growth of 18.2 per cent YoY and 3.16 per cent QoQ. Net Interest Income (NII) rose to ₹6,266.8 crore, up 11.77 per cent YoY and 3.99 per cent QoQ. Operating profit rose to ₹4,443.4 crore, up 11.46 per cent YoY and 5.99 per cent sequentially. Profit after Tax (PAT) for the quarter came in at ₹2,307.2 crore, registering a healthy 11.39 per cent YoY growth and 7.03 per cent QoQ increase.

AUM grew by 15.74 per cent YoY to ₹2.81 lakh crore, while disbursements for Q2 FY26 rose 10.24 per cent YoY to ₹43,019 crore, reflecting sustained credit demand across core segments. Asset quality remained stable with Gross Stage 3 at 4.57 per cent (improving from 5.32 per cent in Q2 FY25) and Net Stage 3 at 2.49 per cent, while credit cost declined to 1.68 per cent from 1.84 per cent last year, indicating lower stress in the portfolio. Liquidity and leverage metrics also strengthened, with total debt reducing to ₹2,34,000 crore, leverage easing to 3.88x from 4.15x and LCR improving sharply to 297 per cent from 268 per cent. The cost of liabilities continued its downward trend, declining to 8.83 per cent in September. Management expects AUM growth in H2 FY26 to exceed current levels by 2 per cent and plans to raise ₹1,000–1,500 crore via NCDs every quarter while repricing borrowings over the next 18 months to drive cost efficiencies.

On the valuation front, the stock trades at a P/E of 17.9x, which is below the industry average of 22x but above the 3-year median of 13.4x, while the PEG ratio of 0.40x (lower than the industry median of 0.45x) indicates attractive valuation relative to growth. Return ratios remain healthy with ROE at 15.57 per cent and ROCE at 10.95 per cent, supported by strong three-year sales and profit CAGR of 31.7 per cent and 44.5 per cent, respectively. Given the company’s improving asset quality, strengthening balance sheet, consistent profitability, and reasonable valuation metrics, we recommend BUY.

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