Shriram Finance: A Deep Dive into 3-Year Performance and Strategic Outlook

Shriram Finance, a leading NBFC renowned for its dominance in used commercial vehicle financing and diversified in rural credit, has delivered compelling growth while navigating sectoral headwinds. Over the past three years, the company showcased strong fundamentals, expanding AUM, and improving margins—but not without challenges. This post unpacks Shriram Finance’s trajectory through five key financial and non-financial indicators each, followed by a focused SWOT analysis to offer clarity on its path ahead.

I. Financial Indicators (3-Year View)

1. Earnings Growth Trajectory

   • Shriram Finance has grown earnings at an impressive ~33% annually, significantly above the consumer finance industry average of ~29%.

2. Revenue CAGR

   • The company’s revenues have expanded at ~26.7% per year, reflecting strong demand across its financing portfolio.

   Return on Equity (ROE)

   • Shriram continues to deliver healthy returns, with ROE averaging around 15–17%, showcasing capital efficiency over the recent period.

3. EPS & Book Value Trends

   • Earnings per Share (EPS) have trended steadily, with basic EPS at ₹51.92 in FY25, down from ₹191.63 in FY24 (likely due to base effects such as a stock split).

   • Book Value per share (excluding revaluation reserves) stands at ₹299.30 in FY25 .

4. AUM Expansion

   • AUM grew robustly by ~16.6% YoY, reaching ₹2.72 lakh crore in Q1 FY26, underlining strong loan book growth.

II. Non-Financial/Operational Indicators

1. Asset Quality (GNPA & NNPA)

   • As of Q1, GNPA is stable at ~4.53%, while NNPA improved slightly to ~2.57%, reflecting manageable credit risk.

2. Strong Quarterly PAT Growth

   • Q1 FY26 PAT rose by ~8.8% YoY, indicating sustained profitability.

3. Borrowing Profile & Liquidity

   • The firm raised a $1.28 billion multi-currency social loan and is exploring yen-denominated borrowing to diversify and leverage ~₹3,000 crore in excess liquidity to reduce borrowing costs and boost margins to ~8.5–8.8%.

4. Strong Institutional Interest & Recommendation Trends

   • Among 34 analysts, Shriram Finance garners a mix of ‘Buy’ and ‘Strong Buy’ recommendations, with a median price target of ₹722.75 and a 52-week high of ₹750+—reflecting solid market confidence.

5. Group Strength via Insurance Subsidiary

   • Shriram General Insurance (part of the group) reported Q4 net profit growth of 8% and strong premium growth of 25%, enhancing group diversification.

III. SWOT Analysis

Strengths

• High Growth Trajectory: Strong earnings (33% CAGR) and revenue (~26.7% CAGR) outperforming peers.

• Robust ROE: ROE consistently at 15–17%, highlighting capital efficiency.

• AUM Expansion: Healthy YoY growth and credit book scale .

• Strong Institutional Backing: Positive analyst sentiment and shareholding structure indicate market trust .

• Diversified Financial Ecosystem: Insurance subsidiary performance supports group resilience.

Weaknesses

• EPS Volatility: Sharp EPS drop from FY24 to FY25 may reflect base effects or one-offs, potentially masking consistency.

• GNPA Levels: GNPA at 4.5% and NNPA at 2.6%—room to improve in asset quality.

Opportunities

• Diverse Borrowing Strategy: Exploring yen debt and leveraging liquidity could optimize cost of funds and margins.

• Product Expansion: Push into unsecured business loans, supply chain financing could enlarge addressable markets .

• Cross-Sell via Insurance: Insurance business presents cross-selling potential and new revenue streams.

Threats

• Interest Rate and Funding Risks: Rising finance costs may strain margins, despite liquidity buffer.

• Credit Risk in Cyclical Lending: Dependence on CV and MSME loans exposes the company to cyclical downturns and borrower stress.

• Macroeconomic Uncertainty: Any slowdown in economic activity or consumer demand can impact AUM growth and asset quality.

Shriram Finance has delivered standout financial performance with robust earnings, stable returns, and healthy loan book expansion. It is well-positioned through continued institutional backing, diversified offerings, and a prudent funding strategy. Yet, challenges like modest asset quality, EPS volatility, and economic cyclicality remain areas to monitor. Overall, the company’s trajectory suggests a promising outlook for long-term investors seeking exposure to India’s NBFC growth story.