Shriram Finance Limited stock opened the trading session at Rs 3,444 and touched intraday high (and yearly high as well) at Rs 3541 at the time of publication of this report. Shriram Finance stock has almost doubled from its yearly low of Rs 1760. Medium and long term investors consider Shriram Finance as a fundamentally strong stock.

Shriram Finance Ltd has emerged as a formidable performer in the financial markets, riding on strong fundamentals and favorable market sentiment. Since its inclusion in the Nifty 50, the stock has surged, outperforming broader indices significantly. Over the last three years, the company’s shares have risen by 146%, far exceeding the benchmark NSE index. The management remains confident, focusing on cost control through securitization and offshore funding, while expanding its MSME lending outside the southern regions of India. Analysts, including ICICI Direct, remain bullish, with the company expected to surpass growth guidance in the coming years, driven by strategic cross-selling and expanding loan portfolios.

Shriram Finance’s Stellar Stock Performance

Inclusion in Nifty 50 Since being added to the prestigious Nifty 50 index, Shriram Finance Ltd. has demonstrated a robust upward trajectory. The stock has significantly outperformed the broader market, surging by an impressive 146% over the past three years, compared to a 46% rise in the NSE benchmark index.
Investor Interest in NBFCs
Select non-banking financial companies (NBFCs), including Shriram Finance, have been favored by investors for long-term holdings, reflecting confidence in the company’s sustainable growth prospects.

Stable Cost of Funds: A Key Management Focus

Cost Control Through Securitization The company’s management anticipates that the cost of funds will remain stable at approximately 8%. A key strategy to achieve this stability is the focus on securitization and offshore funding, which helps mitigate the cost of borrowing.
Balancing Regional Lending Growth
Shriram Finance’s MSME business distribution between southern and non-southern regions stands at 60:40. However, with growing demand outside the southern states, the company is optimistic about the potential for expansion and a shift in this distribution over time.

Analysts Bullish on Growth Prospects

ICICI Direct’s Buy Call ICICI Direct, in its August report, recommended a "BUY" rating for Shriram Finance, citing its strong rural presence as a driver of further market share expansion. With a target price of ₹3,400 (already achieved), the research house remains optimistic about the company’s future performance.
Healthy Growth in Net Interest Income
The company reported a 20.6% year-on-year (YoY) growth in Net Interest Income (NII), driven by healthy traction in Assets Under Management (AUM), which grew 20.8% YoY to ₹2.33 lakh crore. This offset the 23 basis points (bps) sequential decline in margins, attributed to slower growth in high-yield segments like gold and personal loans.

Strategic Plans for Future Growth

Exceeding Growth Guidance Management aims to surpass its credit growth guidance of 15%, with the auto business expected to grow at 11-12% and the non-auto segment, led by MSME and gold loans, projected to grow faster. This could lead to overall advance growth of 17% CAGR, with steady NII/AUM ratios between 8.2-8.4% in FY25-26.
Expanding Branch Network
The company plans to extend its coverage of gold and MSME loans to 500 and 175 branches, respectively, in FY25-26. This expansion is expected to enlarge its customer base, facilitating cross-selling opportunities, which should improve operational efficiency and earnings.

Profitability and Valuation Outlook

Focus on High-Yielding Segments Shriram Finance continues to benefit from a focus on high-yield segments, stable funding costs, improving asset quality, and operational synergies. These factors are expected to drive Return on Assets (RoA) to ~3% and Return on Equity (RoE) to 14-16% in the near term.