Shriram Finance funding tailwinds and diversified AUM growth support profitability outlook

Investment View

ICICI Securities retained its BUY rating on Shriram Finance in its July 27, 2026 result update. The view is supported by healthy AUM expansion, a strengthening funding profile and stable asset quality. The broker’s target price is Rs 1,200, based on a valuation multiple of about 2.1 times FY28E book value and reflecting expected healthy book accretion.

Shriram Finance is a rural-focused financier offering commercial vehicle, two-wheeler, car, home, gold and small-business loans. As of June 2026, it had 3,225 branches, around 78,902 employees and approximately 1.03 crore customers.

Q1 FY27 Financial and Operating Performance

Shriram Finance reported healthy operating performance in Q1 FY27. AUM rose 15.3 per cent year on year and 3.8 per cent sequentially to Rs 3,13,798 crore, while disbursements increased 19.5 per cent year on year to Rs 49,974 crore.

The broker attributes the profit growth to margin expansion, lower funding costs and income generated by temporarily parking surplus MUFG capital. Asset quality remained stable, with credit cost at 1.66 per cent, gross Stage 3 at 4.64 per cent and net Stage 3 at 2.33 per cent. The Stage 3 coverage ratio improved to approximately 51 per cent.

Diversified AUM Growth

Commercial vehicle AUM grew 19.4 per cent year on year to Rs 1,47,034 crore, representing about 46.9 per cent of total AUM, aided by strong industry commercial-vehicle sales. MSME AUM increased 8.1 per cent to Rs 41,962 crore. Management expects MSME growth to exceed overall book growth as the business expands beyond South India.

Management expects the MSME disbursement run-rate to rise from Rs 6,184 crore in Q1 FY27 to more than Rs 7,000 crore by H2 FY27. Gold AUM grew 45.8 per cent to Rs 7,514 crore, with about 2,200 branches enabled for gold lending. The company aims to increase gold loans from about 2.5 per cent to approximately 5 per cent of AUM over three years.

Growth Guidance and Business Strategy

Management reiterated its 18 per cent AUM growth guidance for FY27, subject to reassessment after Q2 FY27 based on monsoon conditions and geopolitical developments. It expects commercial-vehicle growth of about 15 per cent, while gold lending is expected to remain the fastest-growing segment.

The company expects the share of new-vehicle disbursements to increase from 16–17 per cent currently to 20–25 per cent over the next two to three years. It also plans to source more personal loans from existing gold and MSME customers rather than pursue aggressive outsourced sourcing.

Margins, Funding and Capital Position

NIM expanded 43 basis points sequentially to 9.04 per cent in Q1 FY27, aided by around Rs 500 crore of additional net interest income from surplus MUFG capital awaiting deployment. Cost of liabilities declined to 8.56 per cent, while incremental borrowing cost was 7.77 per cent.

Management expects NIM to remain near current levels for two quarters before gradually normalising to about 8.5 per cent over the medium term as surplus liquidity is deployed and the new-vehicle mix grows. Liquidity remained strong, with a 262.5 per cent liquidity coverage ratio. Leverage reduced to 2.14 times from 3.82 times in March, while capital adequacy rose to 34.17 per cent.

The cost-to-income ratio improved to 25.5 per cent from 29.3 per cent a year earlier. It is expected to remain broadly stable despite planned additions to the branch network and employee base.

Earnings Outlook and Valuation

ICICI Securities expects improving funding costs, gradual moderation in credit costs and stable operating expenses to support profitability. Its estimated profit after tax is Rs 14,071 crore for FY27E and Rs 16,223 crore for FY28E.

The Rs 1,200 target price is based on maintaining a valuation multiple of about 2.1 times FY28E book value, reflecting expected healthy book accretion.

Key Risks and Monitorable Factors

• Weaker vehicle demand could moderate AUM growth.
• An adverse monsoon or prolonged geopolitical uncertainty could result in higher-than-expected stress costs.
• Management identified below-normal rainfall, rural-income trends, El Nino and developments in West Asia as factors to monitor.