Shriram Finance shares maintain Outperform rating with healthy MSME and car loan growth

On Monday, CLSA analysts adjusted their outlook on Shriram Finance Ltd (SHFL:IN), reducing the price target to INR 670 from the previous INR 720, while still holding an Outperform rating. The decision follows the company's third-quarter financial results for the fiscal year 2025, which saw net interest income (NII) meeting CLSA's expectations. However, profit before tax (PBT) was slightly below estimates due to increased operational expenses (opex) and credit costs.

Shriram Finance reported a robust annual growth of 19% in assets under management (AUM), with disbursements growing by 16% year-over-year. Notably, the micro, small, and medium enterprises (MSME) and car loan segments experienced significant growth, with increases of 50% and 25%, respectively. The company also saw a resurgence in the disbursement of unsecured personal loans after several stagnant quarters.

Despite these positive growth indicators, Shriram Finance's net interest margin (NIM) was adversely affected by excess liquidity. Additionally, heightened marketing activities resulted in persistently high operational expenses. The firm also faced increased credit costs due to higher slippages compared to the preceding two to three quarters.

Shriram Finance recorded an exceptional gain of INR 15 billion from the sale of its housing finance subsidiary. This gain, however, was set aside by CLSA in their analysis. Consequently, the firm's net profit forecast for the fiscal years 2025 to 2027 has been trimmed by 3-4%, excluding the exceptional item. The revised price target of INR 670 implies a 1.9x price-to-book (PB) ratio as of September 2026.

The analyst's commentary highlighted the company's strong growth momentum in certain loan segments, but also pointed out the challenges of increased operational expenditures and credit costs. Despite the reduction in the price target, CLSA maintains an optimistic Outperform rating on Shriram Finance Ltd.

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