Analysts see MUFG's 20% stake buy as game-changer for Shriram Finance

MUFG Bank and Shriram Finance entered into definitive agreements on Friday, December 19, 2025, under which the Japanese lender said it will invest ₹39,618 crore in Shriram Finance, acquiring a 20 per cent stake on a fully diluted basis.  At 9:16 AM, Shriram Finance's share price was trading 2.23 per cent higher at ₹921.9 per share on BSE. In comparison, the BSE Sensex was up 0.25 per cent at 85,145.9. 

 

MUFG Bank is Japan’s premier bank, with a global network spanning around 50 countries. MUFG Bank’s parent is Mitsubishi UFJ Financial Group, Inc., with a legacy of over 130 years in India.

 

 

Brokerages believe this move works in favour of Shriram Finance and have upgraded their target on the stock. Nomura has reiterated ‘Buy’ with a target of ₹1,140 per share from ₹1,140. Similarly, PL Capital has maintained ‘Buy’ by raising its target to ₹1,060 per share from ₹875 earlier and Emkay Global Financial Services has retained ‘Buy’ and hiked the target to ₹1,050 from ₹850. Motilal Oswal has also maintained a 'Buy' with revised target of ₹1,100 per share from ₹860 earlier. 

How will MUFG Bank’s investment help Shriram Finance?

The MUFG deal is being seen as a balance-sheet game-changer for Shriram Finance, with analysts flagging multiple long-term benefits even if near-term return on equity (RoE) moderates.

 

Emkay Global said the ₹39,620 crore equity infusion at ₹840.93 per share, giving MUFG a 20 per cent stake, “provides a huge boost to Shriram Finance’s balance sheet”, taking its post-money net worth “extremely close to Bajaj Finance’s and much above that of other non-PSU non-banking financial companies (NBFCs).” 

 

The brokerage estimates that the pro forma Tier I capital ratio by March 2026 will jump by about 14 percentage points to 34 per cent, creating substantial headroom for growth.

 

According to Emkay, the deal has the potential to “alter Shriram Finance’s growth and profitability trajectory” in several ways.

 

“A possible rating upgrade on the back of strong capital adequacy and the MUFG association narrowing the 100 basis points (bps) cost of fund (CoF) gap with AAA peers; the improved CoF and stronger balance sheet allowing Shriram Finance to venture into new product and customer segments… and its possible transition into a bank, as the large balance sheet, high Tier I capital, and MUFG association make it a suitable candidate,” Emkay noted.

 

Analysts also characterise MUFG’s 20 per cent holding as more than just financial. “We see this deal as a strategic investment by MUFG, with long-term plans, including increasing its shareholding and becoming the promoter,” said Emkay.

 

PL Capital highlighted the capital strength and funding benefits, noting that MUFG’s investment through preference shares at a post-money valuation of 1.8 times price-to-book (P/B) will “significantly strengthen Shriram Finance’s capital base, improve its balance sheet resilience and provide long-term growth capital to support expansion across lending segments.” 

 

The brokerage expects the capital adequacy ratio (CRAR) to get a boost of around 15 per cent and believes Shriram Finance is “on track for a rating upgrade.”

 

Even though the large equity infusion will initially dilute return ratios, PL Capital pointed out that core profitability remains intact. “While RoE is likely to be subdued at 12 per cent in FY28E, return on asset (RoA) remains intact at 3.1 per cent.”  ALSO READ | HDFC Securities sees delayed growth recovery at Voltas; retains 'Add' call

Will Shriram Finance grow as fast as its peers?

Nomura believes Shriram Finance is now well-positioned to match the growth rates of its top-tier peers, such as Bajaj Finance and Cholamandalam Investment, following the massive capital infusion from MUFG. 

 

While Shriram Finance’s three-year asset under management (AUM) compound annual growth rate (CAGR) of 18 per cent has historically lagged behind the 28–31 per cent seen at Bajaj Finance and Cholamandalam Investment, Nomura believes that the new capital and accelerated diversification plans could trigger a "big upswing" in its growth trajectory. 

 

Consequently, the brokerage has raised its FY28 AUM growth forecast to 20 per cent from 17 per cent and trimmed its CoF estimate by 24 bps, leading to a 22 per cent jump in its net profit projections. 

Why is MUFG Bank investing in Shriram Finance? 

MUFG is buying into Shriram to secure a scalable platform in India’s mass and Micro, Small & Medium Enterprises (MSME) credit markets, deploy large growth capital into high-potential segments, leverage Shriram’s local strengths with its own global capabilities, and align with India’s infrastructure and inclusion story, according to its filing. 

 

Disclaimer: View and outlook shared on the stock belong to the respective brokerages/analysts and are not endorsed by Business Standard. Readers discretion is advised.