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Profits Surge, Stock Dips
Shriram Finance announced a significant 41% year-over-year increase in net profit, reaching Rs 3,013.6 crore. Despite this strong financial performance, the company's shares declined by nearly 5% to Rs 963.75. This market reaction suggests investors are currently focusing on asset quality concerns, particularly in lending segments like Passenger Vehicles, MSME, and Commercial Vehicles, rather than solely on the profit figures.
Analysts Predict Upside
Leading financial institutions remain optimistic about Shriram Finance's future. Motilal Oswal Financial Services and Nomura have both set target prices of Rs 1,200, indicating substantial potential upside. JM Financial also raised its target to Rs 1,175. Analysts point to Shriram Finance's diversified lending model, a strong secured portfolio, and strategic investment from MUFG as key strengths. They anticipate higher profit margins will help offset potential pressures in the vehicle financing sector.
Asset Quality and Cost Management
The primary concern noted by analysts is a marginal deterioration in loan quality across Passenger Vehicle, MSME, and Commercial Vehicle portfolios, influenced by global uncertainties. Shriram Finance has demonstrated operational efficiency, with operating expenses falling 2% year-over-year to Rs 1,870 crore, which was 13% below estimates. This reduction was partly due to lower employee costs. Additionally, a new accounting method for transaction costs on two-wheeler loans, starting January 2026, will spread DSA commissions over the loan term, reducing reported fees by Rs 51.5 crore this quarter. The company aims for a medium-term cost-to-income ratio between 26-27%.
Growth Outlook
Management projects loan growth between 15-18% for FY27, building on the 15% growth in Assets Under Management seen in FY26. While some analysts have adjusted loan growth forecasts downwards for FY27-29 due to sector pressures, they have consequently increased net profit estimates by about 5%, expecting benefits from reduced operating expenses and improved margins. Shriram Finance's ability to effectively manage loan quality trends amidst changing economic conditions will be key to realizing this outlook.