Brokerage firm Prabhudas Lilladher has maintained its buy rating on Shriram Finance but reduced its price target to Rs 1,200. The revision follows the company’s Q2 FY27 performance, where management moderated its AUM growth guidance to 15-17% due to rural liquidity concerns and macroeconomic uncertainty.
Brokerage firm Prabhudas Lilladher has retained its buy rating for Shriram Finance while adjusting its price target to Rs 1,200. This change comes as the company balances strong recent growth with a more cautious outlook for the coming months due to changing economic conditions.
In its second-quarter performance report for the 2027 fiscal year, Shriram Finance showed a 17% year-on-year increase in Assets Under Management (AUM), reaching Rs 3,290.2 billion. The growth was supported by steady demand across key areas, including commercial vehicles, passenger vehicles, MSME loans, and gold loans. Despite these results, the company’s management decided to lower its growth guidance for fiscal year 2027 from 18% to a range of 15% to 17%.
Strategic Guidance and Rural Impact
The decision to moderate growth expectations stems from broader market concerns. The company noted that geopolitical volatility and inconsistent monsoon patterns have impacted rural liquidity. For investors, this adjustment is significant because it reflects a disciplined approach to managing the loan book in an environment where rural income stability is crucial for credit demand. By lowering the guidance, the company aims to align its expansion plans with actual demand conditions rather than overextending during a period of potential pressure.
Margin Outlook and Asset Quality
The company’s Net Interest Margins stood at 9.5% for the quarter. This performance was helped by a reduction in the cost of funds and fresh capital inflows. However, analysts expect these margins to moderate in the medium term. Projections suggest margins might settle at 10.5% for the current fiscal year and 9.9% for the 2028 fiscal year. The expected compression is linked to the cost of integrating new borrowings and a shift in the portfolio toward new vehicle loans, which typically carry lower yields than the existing portfolio.
Asset quality remains a primary area of focus for the company. While the overall books appear stable, the firm has estimated credit costs at 2.2% for fiscal year 2027 and 2.0% for fiscal year 2028. Observers are keeping a close watch on rural segments, where potential drought-related stress could influence these costs. The brokerage updated its valuation model to a 2.2x multiple on September 2028 Price to Adjusted Book Value, moving the target price from the previous Rs 1,250 to Rs 1,200. Investors may monitor future updates regarding rural loan collection trends and any changes in the interest rate environment, as these factors will influence both the company’s margin profile and credit quality in the coming quarters.