Shriram Finance Limited, a leading name in India’s non-banking financial company (NBFC) sector, has established a robust presence in the commercial vehicle financing and MSME lending space. By focusing on the underserved rural and semi-urban markets, the company has capitalised on opportunities in financial inclusion.
With the recent merger of Shriram Transport Finance and Shriram City Union Finance, it has expanded its portfolio to include a wider range of financial products. But is Shriram Finance a compelling investment choice?
Let’s dive into the company’s fundamentals, growth drivers, and financial insights.
Stock Overview
| Ticker | SHRIRAMFIN |
| Industry/Sector | NBFC |
| Market Cap (₹ Cr.) | 1,28,355 |
| Free Float (% of Market Cap) | 74.23% |
| 52 W High/Low | 730.45 / 438.60 |
| P/E | 13.42 (Vs Industry P/E of 18.89) |
| EPS (TTM) | 50.09 |
About Shriram Finance
Shriram Finance Limited is a key player in the financial services industry, formed through the merging of different entities. Specialising in asset financing since 1979, the company offers various credit solutions like vehicle financing, personal loans, and small business loans, promoting financial inclusion by providing affordable finance options for pre-owned commercial vehicles to First-Time Buyers and Small Road Transport Operators.
Key business segments
Shriram Finance Limited operates primarily in the following key business segments:
- Commercial vehicle finance: The company is a market leader in financing pre-owned and new commercial vehicles, catering to small road transport operators.
- Passenger vehicle finance: Providing loans for both new and used passenger vehicles, including cars and SUVs.
- Construction equipment finance: Financing for construction and infrastructure-related machinery and equipment.
- Farm equipment finance: Offering loans for tractors and other agricultural equipment.
- Small business loans: Extending financial support to small and medium enterprises (SMEs) for their business expansion and operational needs.
- Personal loans: Providing unsecured loans to individuals for personal purposes.
- Fixed deposits and Savings products: Offering deposit schemes to retail customers, contributing to their diversified funding base.
Primary growth factors for Shriram Finance
Shriram Finance’s key growth drivers:
- Dominance in used commercial vehicle financing: Holding approximately a 30% market share in used commercial vehicle financing, this segment remains a cornerstone of the company’s revenue.
- Diversification into Non-vehicle segments: The company has successfully expanded into areas such as Micro, Small, and Medium Enterprises (MSME) loans, gold loans, and two-wheeler financing, reducing dependence on any single revenue stream.
- Strategic mergers and restructuring: The merger with Shriram City Union Finance Limited and Shriram Capital Limited has enhanced the company’s portfolio and operational efficiency.
- Focus on financial inclusion: Aiming to serve underbanked and underserved communities, Shriram Finance emphasizes lending to micro and small entrepreneurs, contributing to both societal impact and business growth.
- Robust financial performance: The company has demonstrated strong financial results, with a 9.5% sequential growth in disbursements for Q3FY25, driven by demand in MSME, two-wheeler, and passenger vehicle loans.
- Adaptation to market dynamics: By aligning with government initiatives like PM Gati Shakti and responding to policy changes, Shriram Finance positions itself to capitalize on emerging opportunities.
Detailed competition analysis for Shriram Finance
Key Financial Metrics – FY 24;
| Company | Revenue(₹ Cr.) | EBITDA(₹ Cr.) | EBITDA Margin (%) | PAT(₹ Cr.) | PAT Margin (%) | P/E (TTM) |
| Shriram Finance | 36340 | 26036 | 71.57% | 7391 | 20.32% | 13.42 |
| Cholamandalam Investment and Fin. | 19140 | 13754 | 71.86% | 3411 | 17.82% | 31.61 |
| Muthoot Finance | 15062 | 11418 | 75.81% | 4468 | 29.66% | 18.98 |
| Sundaram Finance | 7267 | 5635 | 77.54% | 1433 | 19.57% | 33.33 |
Key insights on Shriram Finance
- Achieved an impressive revenue CAGR of 19% over the last 5 years and 28% over the last 3 years, driven by expanding loan book and strong customer acquisition.
- Maintains Net Interest Margins (NIM) between 6% and 9% over the past five years, reflecting effective lending practices and cost management.
- Delivered robust profit growth with a 23.4% CAGR over the last 5 years, supported by efficient capital allocation and operational excellence.
- Gross NPA has steadily declined from 6.47% in FY20 to 5.45% in FY24, showcasing improved credit management and prudent underwriting.
- Maintains a solid CRAR ratio consistently above 20% for the last five years, ensuring ample capital adequacy for future growth.
- Demonstrates a commitment to rewarding shareholders with a healthy dividend payout ratio of 21.6%, reflecting stable profitability and strong cash flow generation.
Recent financial performance of Shriram Finance for Q3 FY25
| Metric | Q3 FY24 | Q2 FY25 | Q3 FY25 | QoQ Growth (%) | YoY Growth (%) |
| Revenue (₹ Cr.) | 8922.39 | 10089.54 | 10698.31 | 6.03% | 19.90% |
| EBITDA (₹ Cr.) | 6288.31 | 7253.67 | 7665.17 | 5.67% | 21.90% |
| EBITDA Margin (%) | 70.48% | 71.89% | 71.65% | -24 bps | 117 bps |
| PAT (₹. Cr.) | 1818.33 | 2071.26 | 3232.07 | 56.04% | 77.75% |
| PAT Margin (%) | 20.38% | 20.53% | 30.21% | 968 bps | 983 bps |
| Adjusted EPS (₹) | 9.94 | 11.39 | 3.45 | -69.71% | -65.29% |
Shriram Finance financial update (Q3 FY25)
Financial performance
- NII grew by 14/2% YoY/QoQ.
- Margins contracted by 26bps QoQ. This was owing to a sharp decline in blended yields by 32bps, while CoF inched up by ~10 bps QoQ.
- Non-interest income was up 18/30% YoY/QoQ, led by healthy fee income (+14/17% YoY/QoQ).
- Opex grew by 22/6% YoY/QoQ, owing to higher employee Opex (+20/7% YoY/QoQ, generally in the range of 2-4% QoQ growth in the last four quarters).
- Provisions increased by 6/7% YoY/QoQ.
- Credit costs were in line with expectations at 231 bps vs 224bps QoQ.
- The company realised a one-time gain on the sale of the housing subsidiary of ₹1,656 Cr.
- PAT grew by 14% YoY and was flat QoQ excluding the impact of the one-time gain.
Asset Quality
- GNPA/NNPA increased marginally to 5.38/2.68% from 5.32/2.64% QoQ.
- Asset quality across most segments was stable, with a marginal deterioration in the CV and Construction Equipment segments.
- PCR stood at 51.6%, stable QoQ.
Operational Performance
- SFL added 0.42 Mn customers (net) during the Quarter, taking the total customer base to 9.44 Mn vs. 9.02 Mn in Q2FY25.
- AUM grew by 19/5% YoY/QoQ (marginally ahead of expectations of 18/4% YoY/QoQ), with growth driven by:
- PVs: +25/6% YoY/QoQ
- Farm Equipment: +42/7% YoY/QoQ
- MSME: +50/7% YoY/QoQ
- 2-Wheelers: +27/18% YoY/QoQ
- The share of CV loans (+13/3% YoY/QoQ) has increased to 45% vs 46% QoQ.
Company valuation insights – Shriram Finance
Shriram Finance is trading at a TTM P/E of 13.42, below the industry average of 18.89. The stock has surged 42.2% in the past year, outperforming the Nifty 50’s 6.6% return.
Strong AUM and disbursement growth, effective cross-selling, and portfolio diversification are key growth drivers. While minor asset quality deterioration was noted, management remains optimistic about improvement in the seasonally strong fourth quarter.
With a projected 19% PAT CAGR over FY24-27E and applying a 1.9x multiple to its FY27E BVPS of ₹387, we estimate a target price of ₹740, implying a 10% upside.
Major risk factors affecting Shriram Finance
- Asset quality risks: Focusing on high-yield segments like small transport operators raises credit risk. Gross stage 3 assets stood at 6.0% and net stage 3 at 3.1% as of September 2023.
- Interest rate fluctuations: Higher borrowing costs and yield volatility may pressure net interest margins and profitability.
- Economic sensitivity: Performance is vulnerable to economic downturns, impacting loan demand and asset quality.
Technical analysis of Shriram Finance share
Shriram Finance recently broke out from a descending channel in early March, followed by a strong upward move. The stock is trading above all key moving averages, indicating positive momentum.
The MACD remains firmly positive at 25.81, with the MACD line above the signal line, supporting the continuation of the uptrend. The RSI is at 69.22, approaching the overbought zone, while the relative RSI for both 21 and 55 days is significantly positive at 0.12 and 0.18, reflecting strong outperformance against its benchmark. The ADX at 33.21 suggests a strong trend.
If the stock sustains above its immediate resistance of ₹730, it could move towards the target price of ₹740. On the downside, strong support is seen at ₹620.
- RSI: 69.22 (Near Overbought)
- ADX: 33.21 (Strong Trend)
- MACD: 25.81 (Positive)
- Resistance: ₹730
- Support: ₹620
Shriram Finance stock recommendation
Current Stance: Buy with a target price of ₹740 (12-month horizon); while minor asset quality pressures persist, strong AUM growth and operational resilience support a positive outlook.
Why Buy Now?
Strong Rural Demand: Robust rural consumption is expected to drive healthy AUM growth.
CV Segment Resilience: Used CV demand is set to rise, supported by strong past sales and improving utilization.
Infrastructure Boost: Increased activity will likely revive new CV demand.
PV Financing Growth: Low market share offers significant growth potential amid rising aspirations and limited public transport options.
Gold Loan Pick-up: Growth expected in Q4FY25, further supporting AUM expansion.
Sustainable Growth: AUM projected to grow at a steady 16% CAGR over FY25-27E.
Portfolio Fit:
With its diversified lending portfolio, strong operational performance, and favorable return outlook, Shriram Finance is a solid choice for investors seeking exposure to India’s growing financial services sector.If you found this helpful and want regular stock trade calls, check out my community on StockGro here: https://app.stockgro.club/ui/social/tradeViews/groupFeed/07a7b961-b8ca-42ce-baf3-a9eec781b6ebShriram Finance: Budget 2025-26 opportunities
- Enhanced Lending: RBI’s reduced risk weights on microfinance loans will lower capital costs for banks, enabling cheaper funding for NBFCs like Shriram Finance.
- Diversified Funding: Relaxed lending norms may shift NBFCs towards bank loans, enhancing financial stability and growth.
- Increased Loan Demand: Tax relief and higher disposable incomes could drive demand for loans, expanding Shriram Finance’s customer base.
- Liquidity Support: Proposed refinance facilities for priority sectors may provide additional funding, unlocking new growth avenues.
Final thoughts
Shriram Finance’s focus on financial inclusion, particularly in underserved rural areas, makes it a unique player in the Indian NBFC sector. Its strong brand reputation, risk management framework, and operational efficiency create a robust investment case.
Investors looking for long-term growth in India’s financial sector may find Shriram Finance an attractive opportunity. As the company continues to expand its product offerings and leverage digital innovations, it is well-positioned to navigate challenges and capture growth opportunities.
