The shares of Shriram Finance have surged over 2% in early trade after the company approved a preferential equity issuance of Rs 39,620 crore to MUFG Bank, a Japan-based financial institution, at an issue price of Rs 840.93 per equity share. MUFG will hold a 20% stake in the company on a fully diluted basis and will be classified as a public shareholder.
Brokerages have given a thumbs up to the deal and retained their Buy rating on Shriram Finance. Here is a detailed analysis of key brokerage views on the key NBFC counter now –
Nomura on Shriram Finance
As the promoter stake dilutes to 20% from 25% post the issuance, the Japanese bank might bring expertise in various aspects of Shriram Finance’s operations and business model. Even though MUFG Bank will be classified as a public shareholder, it gets to nominate up to two non-independent directors on the board of the company. Therefore, Nomura sees this as a big positive.
“As we lift FY28 AUM growth (expectations) to 20% from 17% earlier and trim the cost of funds by 24 bps, our net profit estimate is up 22%,” said Nomura. The brokerage reiterated its Buy call on Shriram Finance, while raising the target price to Rs 1,140, implying an upside of 26.4%. Nomura prefers both Shriram Finance and M&M Financial Services among its NBFC coverage.
Motilal Oswal on Shriram Finance
The leading domestic brokerage house, Motilal Oswal, sees this transaction as a strategically significant and value-accretive development for Shriram Finance. MUFG’s investment is expected to support the company’s next phase of growth by providing long-term capital to accelerate expansion across core segments, including CV and MSME lending, while strengthening balance sheet resilience through enhanced creditworthiness and funding capacity.
Over time, this could culminate in a potential credit rating upgrade to AAA for the finance company. The brokerage house retained its ‘Buy’ call on the stock, with a target price of Rs 1,100, which suggests another 22% over the next 12 months.
Jefferies on Shriram Finance
International brokerage house Jefferies also has a positive view on Shriram Finance after the deal announcement. They believe that the deal will boost the capital base and prospects of a credit rating upgrade. Currently, the NBFC’s tier 1 cap at 19.9% (pre-deal) is healthy, but the proposed capital infusion would lift the tier 1 cap to 30% +, providing additional growth capital. As a result, a stronger balance sheet may also improve the prospects of a credit rating upgrade to AAA from AA+. This can “improve Shriram Finance’s competitiveness in lower-yielding segments, including new CVs and MSMEs, and aid growth,” they added. As of now, they have retained a Buy rating with a price target of Rs 1,060. This implies almost 18% upside from the current level.
What’s next for investors
Most brokerage houses see scope for nearly 20% upside in terms of the Shriram Finance share price movement. According to them, the proposed equity infusion is BV accretive and will help boost the MBFC’s competitiveness.