Shriram Finance’s diversification strategies and borrowing cost gains are expected to drive the next leg of earnings growth. Multiple growth engines are emerging for the company beyond its core CV franchise, brokerage Motilal Oswal said in a report.
The stock is being impacted by several factors right now but Motilal views these as cyclical and short-term in nature. On the other hand, structural earnings drivers such as higher growth capacity, lower incremental cost of funds, and product diversification are only beginning to play out. The brokerage retained its ‘Buy’ rating on the stock and has a target price of Rs 1,220, implying an upside of over 24% from its current level.
Motilal Oswal on Shriram Finance: New growth levers
Higher crude oil prices, elevated bond yields, and uneven monsoon trends could weigh on rural cash flows and transporter incomes in the near term. However, Shriram Finance’s diversified franchise, resilient asset quality, and strong underlying demand provide a cushion against these headwinds, the brokerage said.
While CV remains the company’s anchor, new-vehicle financing, MSME, and gold are emerging as meaningful incremental growth engines. “New-vehicle financing has already risen to 16% of disbursements from 10% earlier, with management targeting 20–25% over the next 2–3 years,” Motilal said, adding that it expects an assets under management growth of 18% on a compounded annual growth rate basis over FY26-FY28.
“Shriram Finance’s large existing customer base provides a natural opportunity to offer multiple products over the customer lifecycle, from used CV and new vehicle financing to MSME and gold loans. We believe this should improve customer retention and increase wallet share, while the post-MUFG capital infusion provides sufficient balance sheet capacity to support growth,” Motilal Oswal said.
Motilal Oswal on Shriram Finance: MUFG deal
The partnership with Japan’s MUFG bank strengthens Shriram Finance’s balance sheet and competitive positioning. The bank’s 20% stake provides a “substantial” capital headroom, with management indicating that the existing capital base can support growth for the next 4–5 years. “This reduces the near-term need for another large primary capital raise and provides greater flexibility to invest in emerging growth opportunities,” the brokerage said.
The partnership also provides access to a broader Japanese corporate system. “Potential relationships with corporates such as Suzuki, Toyota, Honda, Yamaha, Denso, and Hitachi could create opportunities beyond vehicle financing, including supply chain finance, equipment financing, manufacturing, and rural/semi-urban ecosystems. While these opportunities are still evolving, the strategic relationship could expand SHFL’s addressable market over time,” Motilal said.
Moreover, lower funding costs should improve the company’s ability to compete in new vehicle financing. “Historically, relatively high funding costs constrained the company’s ability to compete aggressively in new vehicles. The improving funding profile is now enabling SHFL to expand in this segment and deepen customer relationships by allowing borrowers to graduate from used to new vehicles within the Shriram ecosystem.”
Conclusion
The vehicle financier’s growth is broadening beyond the core CV operations with new-vehicle, MSME, and gold financing. Motilal expects these to drive earnings growth hereon, supported by the MUFG deal, which can create more opportunities in Japan.
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