Shriram Finance shares rally 5%, outperform market on stable outlook

Shriram Finance's credit cost is expected to improve marginally to about 1.9% of average loans over the next couple of years from 2.1% currently.

Shares of Shriram Finance rallied 5 per cent to ₹648.45 on the BSE in Tuesday’s intra-day trade amid heavy volumes on a stable outlook. The stock has erased the majority of its losses (down 6 per cent) recorded in the past three trading days. It had hit a 52-week high of ₹730.43 on September 27, 2024.

 

At 10:14 AM; Shriram Finance was the top gainer among the constituents of the Nifty Financial Services index, which gained 1.6 per cent. The benchmark Nifty 50 was up 1.62 per cent.

 

Meanwhile, Shriram Finance has outperformed the market in the recent past. In the past one week, the stock has gained 1 per cent, as compared to the 3.3 per cent decline in the Nifty 50. In the past three months, Shriram Finance has surged 11 per cent, as against the 5.4 per cent fall in the benchmark index.

 

Shriram Finance is the flagship company of the Shriram group which has a significant presence in Consumer Finance, Life Insurance, General Insurance, Stock Broking and Distribution businesses. Shriram Finance Limited is one of India’s largest retail asset financing Non-Banking Finance Companies (NBFC) with Assets under Management (AUM) above Rs 2.54 trillion.

 

It has a vertically integrated business model and offers financing for a number of products which include passenger commercial vehicles, loans to micro, small and medium enterprises (MSMEs), tractors & farm equipment, gold, personal loans and working capital loans, among others.

 

On March 18, 2025, S&P Global Ratings upgraded Shriram Finance to 'BB+/B' from 'BB/B' to reflect its view that the company will benefit from a strengthening regulatory environment, particularly for upper-layer fincos in India, and will maintain its financial profile.

 

The ratings agency expects Shriram Finance to maintain its market leadership in the used-commercial vehicles market. The company benefits from its entrenched position in financing for this sector, helped by its long-standing relationship with borrowers, deep understanding of the market, and expansive reach in lower-tier cities and rural areas.

 

Shriram Finance operates in high-risk, high-return business lines that target low-income, underbanked customers in semi-urban and rural areas of India. That said, good economic growth prospects in India will help the company's asset quality. 

 

“We expect Shriram Finance's credit cost to improve marginally to about 1.9 per cent of average loans over the next couple of years from currently 2.1 per cent. However, Shriram Finance's non performing loans and credit costs will stay higher than those of peers because the company's borrowers have weak financial health and often do not have steady cash flows,” S&P Global Ratings said in the rating rationale.

 

Despite expectations of Shriram Finance's high loan growth of 17 per cent-19 per cent over the next two years, its capitalisation should remain strong, the rating agency said. It projects a risk-adjusted capital (RAC) ratio for the company at 13.5 per cent-14.0 per cent over the next couple of years.

 

Meanwhile, Shriram Finance continues to deliver steady growth without pursuing aggressive growth in any of its segments. Additionally, addressing the concerns around the visibility of asset quality concerns in the commercial vehicle (CV) portfolio, the management sounded confident about maintaining stable asset quality while keeping credit costs near its long-term average.

 

Analysts at Axis Securities in the December quarter (Q3FY25) result update, said they continue to like Shriram Finance for its ability to reduce cyclicity with lowering dependence on the CV portfolio and pursuing healthy growth in non-CV segments, diversification of portfolio to ensure healthy AUM growth, maintain steady asset quality metrics with lower mix of unsecured loans and the potential to deliver healthy return ratios.