A quarter of two halves

Shriram Finance's operating engine ran hotter than Motilal Oswal expected. Net interest income rose about 40% to Rs 8,415 crore, while operating expenses climbed only 4% to Rs 2,025 crore, 9% below forecast. That combination lifted pre-provision operating profit 53% to Rs 6,809 crore, a 7% beat.

The upside stopped at the provisioning line. Credit costs of Rs 1,877 crore came in about 20% above the house estimate, leaving net profit merely in line.

Source: Motilal Oswal quarterly table, in Rs crore.

Why the rain gauge now matters for a lender

The 2026 southwest monsoon closed at 87% of the long-period average, and about 51.2% of India's land area was abnormally dry or worse as of Sept. 23. Moisture stress hit rice, soybean, maize, cotton and pulses, and weaker farm output is already denting demand for entry-level two-wheelers and cars.

Shriram has a sizeable portfolio in all three states and has turned cautious there. Management insisted the stress is regional and seasonal, with no evidence of widespread portfolio deterioration.

Where the stress is showing

Write-offs of Rs 800 crore equalled about 1.1% of trailing assets under management. Stage 2 rose most in commercial vehicles, MSME, tractors and gold loans. Provision cover on Stage 3 improved about 50 basis points to roughly 51.5%.

Annualised credit cost, on the brokerage's calculation, jumped to about 2.35% from 1.9%. Management, measuring against total assets, put it at 2.03%.

What management changed, and what it kept

Growth itself held up. Disbursements rose 25.7% to Rs 54,100 crore and AUM grew 17% to Rs 3.29 lakh crore, slightly ahead of estimates, led by commercial and passenger vehicles, gold and personal loans. MSME lending, now pan-India after the merger, should outpace other segments, though about 28% of that book is unsecured.

The margin sugar rush, and its slow fade

Reported net interest margin improved about 50 basis points to roughly 9.52%, chiefly because Shriram deployed the equity it raised from Japan's MUFG. Management expects that tailwind to fade.

Management's NIM path as stated on the call; step heights are illustrative.

The Reserve Bank lifted the repo rate 25 basis points to 5.5% as retail inflation hit a 22-month high of 5.54%, and incremental borrowing costs of about 8% could rise to 8.3-8.35%. More new-vehicle loans, which yield 200-400 basis points less than used-vehicle loans, could also dilute returns. Motilal Oswal models margin on assets at 9.6% in FY27 and 9.3% in FY28, against 8.2% in FY26.

Estimates edge up; the BUY case rests on book value

Higher provisions were more than offset by better margins and lower costs, nudging FY27 and FY28 profit estimates up 1.6% and 1.8%. It expects AUM and profit to compound at about 18% and 31% a year over FY26-28, with return on assets of about 4.1% in FY28. Return on equity dips to 13.7% on the enlarged capital base.

Book value implied by the target (Rs 1,155 ÷ 2); see the editor's note.

At Rs 867, the stock trades at about 1.5 times FY28 estimated book. The target sits a rupee above the 52-week high of Rs 1,154, so the call asks investors to look through one or two difficult quarters.

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