Shriram Finance

Investment case

Used-CV leader with MUFG as partner

Why this business

Shriram Finance is India's largest retail asset-financing NBFC (formed by the 2022 merger of Shriram Transport Finance, Shriram City Union Finance and Shriram Capital), with Rs 3.14 lakh crore AUM as of Jun-2026. Commercial vehicle finance (mostly used CVs) is ~47% of AUM (Rs 1.47 lakh cr), with passenger vehicles (Rs 68,650 cr), MSME (Rs 41,962 cr), two-wheelers, gold (Rs 7,514 cr) and personal loans making up the rest. It funds itself through NCDs, bank lines, ECBs and Rs 72,070 cr of public deposits.

What we believe

1. 01Capital-led re-rating: MUFG's Rs 39,618 cr infusion (20% stake at Rs 840.93) lifted CRAR to 34.17% and cut debt/equity to 2.14x; NIM already expanded 93 bps YoY to 9.04% in Q1FY27 and brokers expect ~100 bps lower funding cost over 2-3 years.
2. 02Earnings inflection: Q1FY27 PAT +59.8% YoY to Rs 3,453 cr with NII +33.7% and cost-to-income down to 25.5% from 29.3%; MOFSL models 26% PAT CAGR FY26-28 on 17% AUM CAGR.
3. 03Scale and diversification: Rs 3.14 lakh cr AUM growing 15.3% YoY (management guides 15-18% for FY27) with CV +19.4%, PV +21.2%, gold +45.8%; deposits of Rs 72,070 cr (+14.3%) give a retail liability base most NBFC peers lack.
4. 04Valuation gap to peers: 2.96x P/B / 21.6x TTM P/E vs Chola at 5.09x / 27.0x and Sundaram at 3.51x / 23.0x, despite comparable 16% ROE and a 32% 5-year profit CAGR.
5. 05Asset quality holding: GS3 4.64% / NS3 2.33% stable QoQ with PCR 50.3%; credit cost ran ~1.8% in 9MFY26 vs 3.2% in FY22 (Antique) and management guides below 2%.

Why now

TTM P/E 21.6x and P/B 2.96x on Rs 350 book (screener.in, 7-Sep-2026). Screener flags the stock as 'trading at 2.96x book'; 5-year average multiple not sourced. Antique values it at 2.2x FY28 book, MOFSL sees 28% upside from Rs 891 (Jun-2026); the stock has since re-rated to Rs 1,037. EV/EBITDA n.m.; dividend yield 1.0%.

Market disagreement

• Cholamandalam Investment & Finance: Chola trades at 5.09x P/B and 27.0x P/E (screener.in 8-Sep-2026) for 19.4% ROE and 21% Q1 PAT growth; Shriram offers 60% Q1 PAT growth and 16% ROE at 2.96x P/B / 21.6x P/E, i.e. a much cheaper entry for similar-quality vehicle-finance exposure.
• M&M Financial Services: M&M Fin is cheaper at 1.94x P/B / 15.5x P/E but earns only 12.3% ROE (11.1% 3-yr avg) with a 12% 3-yr profit CAGR and a history of volatile credit costs; Shriram's 16% ROE, 19% 3-yr / 32% 5-yr profit CAGR and 34% CRAR justify its premium.
• Sundaram Finance: Sundaram is a high-quality but slower compounder (FY26 PAT Rs 2,059 cr, 17% 3-yr CAGR, 15% ROE) at 3.51x P/B / 23.0x P/E; Shriram gives 5x the profit pool, higher ROE and a lower multiple, with the MUFG partnership as a specific catalyst.

Position sizing

Core Large cap  3.5% of the PMS on $31 Jul 2026 (August rank 6). Core positions are owned through the cycle for leadership and cash-flow quality.

Catalysts

• Q2FY27 results (late Oct-2026): first full quarter of MUFG capital plus monsoon-season asset-quality read…
• Funding-cost pass-through: incremental cost of funds 7.77% vs 8.56% stock cost; each 25 bps of rate cuts / credit-rating benefit from MUFG flows to NIM through FY27.
• Final RBI revolving-credit rules (post 28-Aug-2026 consultation) could redirect flows toward secured vehicle/gold lenders like Shriram.

Risks and response

• ROE dilution: 25% more shares post-MUFG means ROE mechanically falls (brokers model 13-14% by FY28 vs 16.4% in FY26) unless AUM growth accelerates to 18-20%; promoter holding fell to 20.3%.
• Asset quality is weather/rural-cycle sensitive: management flagged a 'cautious outlook pending Q2 data due to weather impacts'; GS3 ticked up 6 bps QoQ to 4.64% and PCR is only ~50%.
• NIM at 9.04% is above the 8.5% medium-term level management itself guides to; part of Q1's 60% PAT growth is one-time leverage from undeployed equity.

Thesis-break conditions

Not stated separately on this page; the risk list carries the monitoring triggers.

Review history

• 8 Sep 2026 · Yash Palod · one-pager in "Why We Own What We Own" (p39) · portfolio as of $31 Jul 2026
• 31 Aug 2026 · Classification in the August top-30: Core

Source: Buoyant_Why_We_Own_What_We_Own_Sep2026.pdf (portfolio as of 31 July 2026), p39. Internal; external publication of these fields is controlled by audience policy.