Target: ₹1,225
CMP: ₹996.15
Shriram Finance (SFL) is likely to emerge as a leader in the NBFC space in the next five years with structurally better profitability. Management highlighted that it expects a 100bps reduction in cost of borrowing (CoB) over the next 2–3 years and it would utilise the same to retain/acquire new customers. It plans to accelerate credit growth to 20 per cent, from the current levels of 16–17 per cent, over the next five years with an upward bias.
With a better customer profile and incremental growth driven by low-risk products – such as new vehicles and gold loans – it expects a reduction of about 10–20 bps in steady-state credit cost.
Currently, SFL’s net worth (NW) is ₹60,000 crore as of Q2-FY26, and an incremental equity infusion of ₹39,600 crore in a single tranche would increase its NW to ₹ 1 trillion. The same would further strengthen SFL’s capital adequacy and may cross 36 per cent vs. the regulatory requirement of 15 per cent. However, such a large capital infusion would result in an immediate reduction in leverage (debt-to-equity) to 2.6x, from its current level of about 4x and would impact RoE in the near term.
However, the likely cost of fund benefits (about 100bps reduction in CoF over the next 2–3 years) and a 10–20bps decline in credit cost would drive RoA expansion to 3.6 per cent vs. 2.7–2.8 per cent currently.
Overall, it expects long-term RoA to expand to 3.6 per cent vs. 2.7–2.8 per cent currently.