Why Is CLSA Bullish on Shriram Finance With an Outperform Rating?
About Shriram Finance: Shriram Finance Limited is one of India’s largest non-banking financial companies (NBFCs), formed after the merger of Shriram City Union Finance and Shriram Transport Finance. The company specializes in providing credit to small and medium enterprises (SMEs), commercial vehicle financing, retail loans, and personal loans, primarily catering to India’s unbanked and underbanked segments. With a strong presence across tier-2 and tier-3 cities, Shriram Finance has positioned itself as a key player in driving financial inclusion.
What Is Driving Optimism for Shriram Finance?
The bullish stance from CLSA comes at a time when the NBFC sector is showing resilience amid macroeconomic challenges. Shriram Finance has undertaken significant steps to improve cost efficiency, diversify its loan book, and strengthen funding sources. These moves are expected to bear fruit in the second half of FY26, as lower borrowing costs and improving demand enhance profitability.
- Gradual margin recovery as cost of funds declines
- Stable asset quality, limiting provisioning requirements
- Expansion in SME and retail segments boosting loan book growth
- Focus on underserved rural and semi-urban borrowers
How Will Margins Improve in H2 FY26?
Shriram Finance is expected to benefit from a fall in cost of borrowing as it diversifies its funding sources beyond bank loans to include debentures and securitization. With India’s interest rate cycle showing early signs of stabilization, NBFCs like Shriram Finance are in a position to pass on benefits to borrowers while improving their spreads. CLSA expects net interest margins (NIMs) to gradually expand in the second half of FY26.
Why Is Asset Quality Expected to Remain Stable?
One of the key positives highlighted by CLSA is the company’s strong control over asset quality. Despite operating in segments with relatively higher credit risk, Shriram Finance has consistently maintained its Gross NPA (Non-Performing Asset) levels within manageable limits. Its deep customer relationships, field-level monitoring, and robust collection mechanisms reduce the risk of large-scale delinquencies.
- Robust collection efficiency across loan categories
- Effective risk-based pricing strategy
- Diversification to reduce concentration risks
How Is Shriram Finance Investing for Future Growth?
The company has been ramping up its digital lending capabilities, improving customer onboarding through technology, and expanding its presence in semi-urban and rural markets. These measures aim to create a scalable business model capable of delivering long-term growth. CLSA believes that the company’s growth strategy positions it well to capture opportunities in India’s rapidly expanding credit market.
- Strengthening digital platforms for lending and collections
- Expanding reach in tier-2 and tier-3 markets
- Targeting first-time borrowers in rural India
- Leveraging cross-selling opportunities from existing customer base
Investor Takeaway
For investors, Shriram Finance presents a case of steady recovery and long-term growth. While near-term challenges from interest rate fluctuations may persist, the company’s strong fundamentals, focus on asset quality, and cost of funds benefit provide confidence in its ability to deliver shareholder value. CLSA’s Outperform rating with a target price of ₹735 reflects optimism about margin recovery and stable growth momentum.
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SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.
