Whalesbook
Analyst Boosts Shriram Finance: 'BUY' Rating and ₹1200 Target
Prabhudas Lilladher has started covering Shriram Finance with a 'BUY' rating and a price target of ₹1,200. The firm predicts strong growth for the company's Assets Under Management (AUM), expecting it to expand by an average of 17% annually between FY26 and FY28. This positive outlook is based on anticipated sustained growth in its loan portfolio and better profit margins.
Key Growth Drivers and Margin Outlook
Expected growth in AUM will be driven by higher volumes in vehicle financing and the expansion of its non-vehicle loan business. Shriram Finance's Net Interest Margin (NIM) was 8.6% in Q4FY26, helped by a lower cost of funds. Analysts expect NIM to increase by about 20 basis points by FY27.
Asset Quality Holds Steady Amid MSME Stress
The company's total AUM grew 14.8% year-on-year to ₹3,022.7 billion in Q4FY26, although key asset quality measures showed a small decline. This was due to increased stress in the Micro, Small, and Medium Enterprises (MSME) segment. Despite this, Shriram Finance maintains strong provision coverage at about 6% of its total loans. The brokerage anticipates credit costs of 2.0% for FY27 and 1.9% for FY28, taking into account potential expansion into new commercial vehicle (CV) segments.
Valuation and Management's Vigilance
Although Prabhudas Lilladher made minor adjustments to FY27 and FY28 estimates due to a cautious growth outlook, the firm's confidence remains. The 'BUY' rating is based on applying a multiple of 2.3 times to the projected book value per share (ABV) by March 2028. Management is watching potential challenges, such as the conflict in West Asia and fluctuations in fuel prices.