ICICI Securities has reiterated its BUY rating on Shriram Finance with a target price of Rs 1,225, implying a potential upside of about 28 percent from the current market price of Rs 956. The brokerage is backing a structural re-rating story built on accelerating asset growth, a sharply lower cost of funds post the MUFG transaction, and an upgrade in return ratios as the franchise pivots further toward low-risk, high-yield segments such as gold loans and new vehicles. While near-term return on equity may moderate due to sizeable equity infusion, the long-term investment case remains compelling for patient investors willing to ride out the transition.
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ICICI Securities’ Investment Call

Clear BUY stance with re-rating potential ICICI Securities maintains a BUY on Shriram Finance, projecting the stock to move toward Rs 1,225 as the company cements its position as a leading diversified NBFC over the next five years. The implied upside of roughly 28 percent rests on a valuation of 2.5 times FY27 estimated book value per share, reflecting confidence in the durability of earnings and return metrics.
​Key thesis: growth, margin and quality trifecta The core thesis is anchored on three pillars: upgraded asset under management (AUM) growth guidance of 20 percent, a 100-basis-point projected decline in cost of funds and a structural moderation in credit cost, together pushing steady-state return on assets toward 3.6 percent from 2.7–2.8 percent currently. This combination, if executed, positions Shriram Finance among the most profitable large NBFCs in the country, second only to the segment’s premium names on RoA.
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Stock Levels and Investor Targets

Recommended investor strategy With the current market price around Rs 956 and a 52-week range of Rs 493–984, ICICI Securities sees meaningful headroom for further appreciation as the MUFG deal benefits start reflecting in reported numbers. Medium-term investors may consider accumulating the stock on declines with an investment horizon of 12–24 months, targeting Rs 1,225 as the primary objective while reassessing as return ratios converge toward guidance.
​Risk-reward dynamics at current levels At prevailing valuations, the stock trades at about 2.8 times FY26 estimated book value and 1.9 times FY27 estimated book, leaving scope for re-rating as cost of funds compress and RoA moves closer to the 3.6 percent steady-state goal. However, investors should factor in interim volatility given equity dilution, potential near-term RoE drag and execution risks in scaling newer product lines and geographies.
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Growth Engine: AUM, Segments and Geography

AUM growth guidance lifted to 20 percent Shriram Finance has operated in a 15–17 percent AUM growth corridor post the merger of Shriram Transport Finance and Shriram City Union Finance in FY22, but management now guides for a faster 20 percent trajectory over the next five years. The uplift is expected to be driven by both the “wheels” franchise and an expanding non-vehicle portfolio, with MSME, new vehicles and gold loans playing outsized roles.
​Product mix: wheels-heavy but evolving Currently, approximately 80 percent of AUM is linked to wheels—commercial vehicles, passenger vehicles, commercial equipment, farm equipment and two-wheelers—with commercial vehicles alone accounting for 45.6 percent and passenger vehicles another 21.2 percent. The remaining 20 percent is non-wheels, dominated by MSME loans at 14.4 percent, followed by personal loans at 3.8 percent and gold loans at 1.9 percent, a mix that is expected to shift modestly toward non-vehicle assets over time.
​MSME franchise: small-ticket, high-velocity The MSME book, inherited from SCUF, has grown at a blistering 34–38 percent compounded rate over the past two to three years, far outpacing overall AUM growth of 18 percent. Management is deliberately concentrating on small-ticket loans of Rs 10–12 lakh with five- to seven-year tenors and consciously avoiding large-ticket MSME and loan-against-property segments, preserving yields and protecting margins.
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Funding, Profitability and Capital Structure

MUFG deal: cost of funds catalyst The strategic transaction with MUFG is a central catalyst, with Shriram Finance expecting around 100 basis points of reduction in cost of borrowing over the next two to three years, aided further by a recent repo rate cut and a rating upgrade by CARE from AA+ to AAA. Historically, the company has issued non-convertible debentures at a 50–150-basis-point premium to peers, a gap that now looks set to narrow as its funding profile strengthens.
​RoA upgrade to 3.6 percent Improved funding costs, a richer mix of low-risk products such as new vehicles and gold loans and better pricing power with seasoned borrowers underpin management’s expectation of a 10–20-basis-point decline in steady-state credit cost. Combined with robust net interest margins—NIM on AUM is projected to rise from 9.0 percent in FY25 to 10.2 percent in FY28—this supports a steady climb in RoA from 3.0 percent in FY26 to about 3.8 percent by FY28.
​Equity infusion: short-term pain, long-term gain Net worth stands around Rs 600 billion as of Q2FY26, and an incremental equity injection of roughly Rs 396 billion in one tranche could lift net worth toward Rs 1 trillion and push capital adequacy above 36 percent, far above the 15 percent regulatory floor. This would temporarily depress leverage from about 4 times to 2.6 times and hence weigh on near-term RoE, but over a five-year period, >20 percent AUM compound growth and rising leverage toward 4.5–5 times are expected to restore and expand RoE.
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Operational Metrics and Financial Snapshot

Robust income and earnings trajectory Net interest income is projected to rise from Rs 2,18,548 million in FY25 to Rs 3,97,084 million in FY28, with profit after tax increasing from Rs 88,501 million to Rs 1,66,175 million over the same period. Earnings per share are forecast to climb from Rs 47.1 in FY25 to Rs 70.7 in FY28, even after incorporating capital infusion, reflecting strong operating leverage and credit cost discipline.
​Key valuation and return ratios On FY28 estimates, Shriram Finance trades at a forward price-to-earnings multiple of about 13.5 times and a price-to-book multiple of 1.7 times, levels that appear reasonable given the improving profitability profile. Return on equity is expected to trough at 11.9 percent in FY27 before recovering to 13.2 percent in FY28 as capital gets productively deployed and leverage normalizes, while RoA remains among the highest in the peer set after Bajaj Finance.
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Franchise Strength, ESG and Risks

Geographic depth with SuRu focus Shriram Finance operates through about 3,225 branches, with more than half located in southern India and Tamil Nadu alone accounting for 779 branches. The company plans to accelerate expansion in the central and northern regions—currently only about 26 percent of its network—while maintaining a strong focus on semi-urban and rural markets, which constitute roughly 55 percent of its footprint.
​ESG profile and governance The company’s ESG disclosure score has inched up from 80.1 in 2024 to 81.1 in 2025, with notable gains in environmental and social parameters, even as governance scores remain high despite a marginal decline. Management continuity looks largely intact following the elevation of Parag Sharma as managing director and CEO, with MUFG’s board-level rights expected to be used mainly for second- and third-line roles rather than top management reshuffles.
​Principal risks to the thesis ICICI Securities flags lower-than-anticipated loan book growth and higher-than-expected credit costs as key downside risks, particularly if competitive intensity spikes or new geographies take longer to mature. Any adverse shift in the macro environment, such as a sharp downturn in commercial vehicle demand or stress in MSME portfolios, could delay the envisaged RoA and RoE improvement trajectory and cap valuation re-rating.