Why Is Motilal Oswal Confident About Shriram Finance’s Next Growth Phase?
About Shriram Finance and the Current Call
Motilal Oswal has reiterated its positive stance on Shriram Finance, maintaining a Buy rating while raising the target price to ₹1,100. The brokerage’s confidence stems from Shriram Finance’s ability to consistently deliver strong profitability across cycles, supported by its dominant position in used vehicle finance, deep rural and semi-urban penetration, and a well-diversified lending portfolio. As India’s credit cycle broadens beyond metros, Shriram Finance is positioned as a key beneficiary of structurally rising demand for retail and small enterprise credit.
Shriram Finance has historically demonstrated resilience across economic cycles, including periods of liquidity stress and regulatory tightening. The current thesis from Motilal Oswal builds on this track record, highlighting the company’s ability to balance growth with asset quality and capital efficiency. The brokerage expects the next phase of expansion to be driven by scale benefits, operating leverage, and strategic capital partnerships.
Key Highlights From Motilal Oswal’s View
🔹 Rating maintained at Buy with target price raised to ₹1,100.
🔹 Profit after tax expected to grow at a CAGR of around 25% over FY25–FY28E.
🔹 RoA and RoE projected at approximately 3.8% and 13.2% respectively by FY27.
🔹 MUFG transaction viewed as strategically significant and value accretive.
🔹 Capital infusion expected in FY27, subject to regulatory approvals.
The projected PAT CAGR of nearly 25% underscores the brokerage’s belief that Shriram Finance can sustain high-quality growth even as the base expands. Unlike pure-play lenders that are dependent on a narrow customer segment, SHFL benefits from a diversified borrower profile spanning commercial vehicle operators, MSMEs, and retail customers. This diversity reduces earnings volatility and supports consistent compounding.
Return metrics are another key pillar of the investment case. Motilal Oswal’s expectation of RoA at 3.8% and RoE at 13.2% by FY27 reflects confidence in margin stability, disciplined underwriting, and improving cost efficiency. In a competitive lending environment, maintaining such returns signals strong pricing power and operational control.
Recent Performance and Growth Drivers
| Parameter | Trend | Implication |
| Loan Growth | Strong double-digit | Scale-led earnings expansion |
| Asset Quality | Stable with improving trends | Lower credit cost risk |
| Margins | Healthy and resilient | Supports high RoA |
One of the most important elements of Motilal Oswal’s thesis is the strategic partnership with MUFG. The brokerage views the proposed transaction as value accretive rather than purely capital-driven. Beyond balance sheet support, MUFG brings global financial expertise, governance depth, and potential access to diversified funding channels.
Strengths🔹 Strong franchise in used vehicle and MSME lending. 🔹 Proven risk management across cycles. 🔹 High and stable return ratios. |
Weaknesses🔹 Exposure to cyclical borrower segments. 🔹 Sensitivity to interest rate movements. 🔹 Dependence on regulatory clarity for capital infusion. |
Motilal Oswal assumes that the MUFG-led capital infusion will materialise in FY27, post regulatory approvals. This timing is critical, as it aligns with the next leg of growth rather than being used to address near-term balance sheet stress. Such forward-looking capital planning enhances confidence in management’s strategic intent.
From a valuation perspective, the brokerage’s revised target price reflects improving earnings visibility and reduced execution risk. As credit growth broadens across rural and semi-urban India, lenders with strong distribution and underwriting capabilities are likely to command valuation premiums.
For market participants tracking financial stocks and index movements, developments in large NBFCs like Shriram Finance often have broader implications for sector sentiment. Periods of rerating or consolidation in financials frequently influence index direction and derivatives positioning. Structured index-based approaches, such as those followed through Nifty Tip, can help traders navigate such sector-driven market phases.
Opportunities🔹 Structural rise in retail and MSME credit demand. 🔹 Benefits from operating leverage at scale. 🔹 Strategic support from global partner. |
Threats🔹 Regulatory tightening for NBFCs. 🔹 Macroeconomic slowdown affecting borrower cash flows. 🔹 Delay in capital infusion timelines. |
Looking ahead, the sustainability of Shriram Finance’s growth will depend on maintaining underwriting discipline as competition intensifies. However, the company’s long operating history and deep local knowledge provide an edge that is difficult for newer entrants to replicate quickly.
In a broader market context, financial stocks often act as bellwethers for economic confidence. Positive brokerage views on leaders like SHFL reinforce the narrative that India’s domestic credit cycle remains intact. For derivatives and index traders, such signals are important inputs when assessing medium-term market structure. Tools like BankNifty Tip help contextualise financial sector momentum within overall market trends.
Valuation and Investment View
Motilal Oswal’s raised target price of ₹1,100 reflects confidence in Shriram Finance’s earnings compounding and strategic direction. The anticipated capital infusion in FY27 further strengthens the balance sheet for the next growth cycle. While near-term volatility cannot be ruled out, the medium-to-long-term investment case remains anchored in strong fundamentals and improving return ratios.
Investor Takeaway
Derivative Pro & Nifty Expert Gulshan Khera, CFP® believes that Shriram Finance represents a case where scale, discipline, and strategic capital converge. Motilal Oswal’s confidence highlights the lender’s ability to compound earnings without compromising asset quality. Investors should track execution on growth and capital infusion timelines while aligning exposure with long-term financial sector trends. Read more structured market insights at Indian-Share-Tips.com, which is a SEBI Registered Advisory Services.
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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.
