Buy Shriram Finance; target of Rs 875: Prabhudas Lilladher

BUY

Prabhudas Lilladher's research report on Shriram Finance

2QFY26 disbursements registered a growth of 10% YoY to Rs 430.9bn. AUM growth was robust at 15.7% YoY/ 3.3% QoQ to Rs 2,813.1bn, led by the CV, PV and MSME segment (+14.2%/ 21.5%/ 25.8% YoY respectively). Growth in Construction Equipment was subdued (-12.9% YoY) due to low state-level/ local spending and cash-flow challenges. The split among CV/PV/CE/Farm Equipment/MSME/2W/Gold/Personal Loans stood at 45.5%/ 21.2%/ 5.5%/ 2.2%/ 14.4%/ 5.5%/ 1.9%/ 3.7% respectively. Commentary indicated strong uptick in PV and tractor sales in Oct-25 post GST cuts and expects a higher growth run-rate (18%) in H2 on strong rural consumption. We build an AUM growth of 17%/ 16% for FY26/ FY27E led by higher volumes in new vehicles, replacement demand driving growth in Used Vehicles and a strong ramp-up in the non-VF portfolio (MSME and gold loans).

Outlook

Q2FY26 AUM grew 15.7% YoY to Rs 2,813.1bn, led by strong growth in the CV, PV, MSME portfolio. Commentary indicated strong volume growth in PV post GST rationalization to result in a stronger H2; we build 17% AUM growth in FY26E. NII improved to 8.2% supported by a reduction in CoF and we expect NIM to improve by 10 bps in FY26E. Asset quality ratios were largely stable QoQ, with a significant improvement in Stage 2 across categories. We remain conservative and build a credit cost of 2% for FY26E (vs. guidance of <2%). We increase our FY26/ FY27E estimates on strong AUM growth, favorable margin profile and controlled asset quality trend, resulting in RoA/ RoE of 3.4%/ 17.0% by FY28E. Upgrade to BUY with a multiple of 2.2x on Sep’27 ABV and a TP of Rs 875.

For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Shriram Finance_Prabhudas