Shriram Finance remains the biggest Non-Banking Financial Company in the retail segment. Its current market price is about Rs. 527 and market capitalisation is around Rs. 99,157 crore. The ratings given to the stock is over-weight.

The performance of the company was affected by a hike in operating spendings and provisions. Despite the prevailing contraction in the industry, the quality of assets of the company continued to be strong due to a healthy balance of different credits.

Performance of the stock
During the period of the previous three months, the shares of the company recorded a decline of about 19 percent. Since 10th January, 2025, the stock has traded in accordance with a new split basis as it was split into a ratio of 1:5.

Healthy credit mix
The commercial auto industry is facing a declining trend in the present times. Despite this, the growth in AUM was higher than predicted due to a rise in loans taken for passenger vehicles, MSME, and two-wheelers.

The progress in medium and heavy commercial vehicles was not much due to bad weather conditions, prolonged elections, and also due to contraction in spending on infrastructure. In contrast to this, the two-wheelers and Passenger vehicles recorded a strong growth potential. Further, rise in rural consumption levels lead to boost to growth in demand for farm equipment and tractors.

There is a potential for Commercial vehicles to grow in case of increase in market activity. Apart from this, the growth in loans for the non-auto segment will lead to expansion of credit growth. The company recorded a consecutive fall in the gold loans segment. Despite this, it is anticipated to record a slight hike in the growth following the fourth quarter of the financial year 2025. The company expects its AUM to grow in the range of 15 to 20 percent.

Sale of its subsidiary
In the month of December 2024, the company sold shares of about 84.44 percent of its housing finance subsidiary to Warburg Pincus. The sale was worth about Rs. 3,929 crore. The money acquired from the sale of the subsidiary will help to finance its further growth in its key business areas having high returns. It will give an opportunity to the company to focus on growth of operations which give high returns to the company.

This sales agreement helped the company to raise its capital adequacy ratio to about 84 basis points on a quarter-on-quarter basis in the third quarter of the current financial year. The sale of the housing finance subsidiary of the company led to a special profit of about Rs. 1,489.39 crore to the company after deduction of its taxes.

Performance of asset class
In midst of tension across the industry, the company was able to maintain low cost of loans. The reason for this is efforts taken regarding collection of loan amounts and loan approvals. This has resulted in a good quality of assets of the company. The company has maintained a target of keeping the cost of loans below the range of 2 percent. The company was able to keep its loan cost in the range of 1.85 percent.

Performance of NIMs
Even though the loan cost is low and stable returns observed by the company, the contraction in net interest margins was recorded. The reason for this is surplus liquidity in the company. In the fourth quarter of the current financial year, the company is projected to record a hike of 20 basis points in the net interest margins, when the issues of cash flow are resolved. The expansion in assets with higher returns will help to improve net interest margins. Further, the possibility of RBI reducing interest rates will help in the progress of the company.

In the third quarter of the financial year 2025, the cost of employees and other overhead was spiked. This resulted in the expansion of the cost-to-income ratio of the Shriram Finance company compared to being in range of about 28 percent in the current financial year. Further, the ratio is anticipated to fall in the financial year 2026. The reason for this is progress in digitization and productivity of the company.

In addition to this, expansion of NIMs, stable loan cost and a healthy growth in AUM will lead to boost to Return on Equity (ROE) of the company.

Projection
Shriram Finance was able to tackle the prevailing economic challenges in the economy. It was able to outshadow its competitors. One of the reasons for this is power to set prices as it has a strong position in the rural areas and financing of used vehicles segments. It also has the advantage of selling extra products to their existing consumers.

Following its merger, the company is able to diversify its services resulting in better risk management and not depending on one type of financing only.

Further, the recovery would be observed in the commercial vehicles segment due to rise in rural demand and better macroeconomic situation. It is also due to growth in logistics operations due to good monsoon and expansion in infrastructure expenditure in the first half year of the financial year 2026.

In present times, the company’s stock price is about 1.8 times compared to its projected book value for the financial year 2026. Further, the current fall in the stock price can act as a chance for long-term investors to purchase and hold the stock.