Motilal Oswal Maintains Buy Recommendation for Shriram Finance, Target Price Revised to Rs 1,200
Shriram Finance Posts Strong 4QFY26 Performance, Beats Expectations
Shriram Finance, a leading non-banking financial company (NBFC), has reported a significant increase in its profit after tax (PAT) for the fourth quarter (4Q) of fiscal year 2026 (FY26). According to the company's latest research report by Motilal Oswal, Shriram Finance's 4QFY26 PAT rose approximately 41% year-over-year (YoY) to INR 30.1 billion, exceeding market expectations by 8%.
For the full fiscal year (FY26), Shriram Finance's PAT grew 21% YoY to INR 100 billion. The company's net interest income (NII) for the 4QFY26 period increased by approximately 21% YoY to INR 67.5 billion, meeting market expectations. However, other income declined by 34% YoY to INR 4.4 billion, falling short of market estimates by 12%. Operating expenses (Opex) decreased by 2% YoY to INR 18.7 billion, primarily due to sequentially lower employee expenses in the third quarter (3Q) of FY26, which was impacted by the labor code.
The company's transaction costs, including DSA commissions in two-wheeler loans, are now amortized at the effective interest rate (EIR) over the loan tenure for loans granted from January 2026 onwards. As a result, fees and commission expenses were lower by INR 515 million for the quarter.
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Guidance and Outlook
Shriram Finance has guided for a cost-to-income (CI) ratio of approximately 26-27% for the medium term, with operating costs expected to grow at 10-12% over the same period. The company's stock is currently trading at 2.1x FY27 estimated price-to-book value (P/B). Motilal Oswal expects Shriram Finance to deliver a compound annual growth rate (CAGR) of approximately 17%/26% in assets under management (AUM)/PAT over FY26-28E, along with return on assets (RoA)/return on equity (RoE) of approximately 3.8%/13.1% by FY28.
| Indicator | FY26 | FY27E | FY28E |
|---|---|---|---|
| AUM Growth CAGR | - | - | 17% |
| PAT Growth CAGR | - | - | 26% |
| RoA | - | - | 3.8% |
| RoE | - | - | 13.1% |
We reiterate a BUY rating for Shriram Finance with a target price of INR 1,200, premised on a price-to-book value per share (BVPS) of 2.2x for FY28E.
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Investor Takeaway
Investors should consider Shriram Finance for its potential growth in AUM and PAT.
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