Shriram Finance’s March quarter (Q4FY26) results are steady, but it is treading with caution amid macro-economic concerns, such as elevated crude prices and expectations of a dull monsoon this year, which could hurt rural demand.
Shriram reported in-line net interest income (NII), but operating expenses came in lower than expected, leading pre-provisioning operating profit (PPoP) to beat consensus by 5%, said a report by Nuvama Research.
NII increased by 21% year-on-year to ₹6,751 crore. Assets under management (AUM) rose by 15% year-on-year to ₹3 trillion, aided by an uptick in commercial vehicles (CVs), passenger vehicles (PVs), farm equipment and gold.
Shriram still has a heavy dependence on CVs, which contributed 46.9% of its total AUM versus 45% last year, and grew by 19.5%. PVs were the second-largest contributors, accounting for 21.3% of total AUM and rising by 19%. On the other hand, construction equipment was a pain point, falling 25%, due to slow state-level/local spending on infrastructure projects.
Disbursement grew 14.9% in Q4. Shriram managed to capture demand across both new and used vehicles. As costs of funds fell, its net interest margin (NIM) improved slightly sequentially to 8.61% in Q4FY26 from 8.58% in Q3.
Borrowing costs have started to decline and could drop further over time, especially after the MUFG investment, which has led to various credit rating upgrades. However, it may pass on some benefit to customers, so margin improvement could be limited.
The management aims to clock 17-18% AUM growth in FY27. But uncertainty on retail fuel price hikes poses a risk for vehicle sales growth ahead. Shriram’s plan is to rely more on market share gains and customer retention rather than on industry growth alone. PVs are expected to grow faster, while CV growth should be stable. There is also a gradual shift towards more new-vehicle financing, which could improve loan book quality over time.
While non-vehicle finance segments, such as gold loans and MSME lending, are expected to reduce dependence on vehicle financing, macro-uncertainties may cap growth in these segments. Margins are expected to stay broadly stable, with NIM guidance around 8.5–9%. Nuvama expects NII to grow by 21% to Rs31,582 crore in FY27.
Asset quality remains broadly stable for now, with NPAs at around 4.6% and credit costs at 1.7% for FY26. But there has been a slight uptick in delinquencies in segments like MSME and passenger vehicles, driven by higher input costs and supply-side disruptions. The sequential increase in gross stage 2/3 assets was a negative surprise, said HDFC Securities. This classification represents loans with increased risk. The management highlighted that any notable stress whether from higher fuel prices, weaker freight demand, or a below normal monsoon is likely to show up with a lag, possibly in the second half of FY27. This makes asset quality a key variable to track, especially given the company’s exposure to cyclical segments such as CVs
Meanwhile, MUFG’s capital infusion is expected to improve capital adequacy to about 34%, up from 20.4%. The investment offers support for growth and should help lower borrowing costs eventually. Also, access to global funding and potential strategic support could help Shriram scale non-vehicle finance segments and improve its liability profile, although the benefits will play out gradually.
The Shriram stock has gained 45% in the past year, suggesting investors are already factoring in a good share of the optimism. The stock currently trades at 2.1x price-to-book-value for FY27 estimates, as per Nuvama.