Bullish on Shriram Finance: Motilal Oswal Sets Rs 800 Target, Eyeing 23% Gain
Shriram Finance: Four Motivations Behind Motilal Oswal's Prediction of a Rs 800 Target Price
Gear up for a possible 23% soar in your portfolio, folks! Motilal Oswal has kept the pedal to the metal in their bullish stance on Shriram Finance, hailing it as their top pick among non-banking finance companies (NBFCs). They've got a timely price target of Rs 800, and here's why you should hop aboard this ride.
Here are the four main reasons that have Motilal Oswal singing the praises of Shriram Finance:
Economic Recovery: Feeding rural demand and boosting credit demand
Motilal Oswal sees the fortunes of Shriram Finance linked tightly to rural areas and government spending. They're confidence in the financial year 26 outlook is rooted in expectations of a bountiful monsoon and increased government capital expenditure (capex). Both these factors are thought to bolster agricultural income and augment rural cash flows. Fingers crossed for a larger credit pie in Shriram's focus zones - vehicle finance and micro, small, and medium-sized enterprise (MSME) lending.
"Get set for higher agricultural yields and stronger rural cash flows! These babies could drive lending demand," Motilal Oswal chimed.
Improving Margins and Slashed Borrowing Costs
The last few quarters have seen some strain caused by liquidity from substantial foreign currency borrowings (ECB issuances) between December 2024 and March 2025. But don't you worry, Motilal Oswal posits that this oversupply of cash, a whopping Rs 310 billion in March 2025, compared to a mere Rs 27 billion in December 2024, will begin to recede in the upcoming quarters. This will lead to a tidier balance sheet and cushion for margin expansion, with net interest margins probably hitting 8.4% in FY26 and 8.6% in FY27, jumping up from 8.2% in FY25.
Furthermore, Motilal Oswal gives a thumbs-up to the most recent 50 basis points (bps) repo rate cut, as it could ease the pressure on Shriram Finance's cost of funds since 30% of its borrowings are slated for re-pricing in FY26.
Strong Earnings Growth and Return Ratio
With sharp eyes, Motilal Oswal anticipates Shriram Finance cranking out a profit after tax (PAT) compounded annual growth rate (CAGR) of roughly 19% over FY25-FY27, concurrently offering a return on assets (RoA) of 3.3% and return on equity (RoE) of 17% in FY27.
Market Leadership and Growing Valuations
Shriram Finance holds the brass ring as a market leader in the NBFC sphere, and Motilal Oswal reckons it's the ideal candidate for additional valuation expansion. To put the icing on the cake, the one year forward price to book multiple has already re-rated from a modest 1.4x to a juicy 1.9x over the past year.
In their eyes, the stockpacks room for further valuation appreciation, on account of sustained AUM growth, margin improvements, and unwavering asset quality.
Final Thoughts
In a nutshell, Motilal Oswal views Shriram Finance as the crème de la crème in the NBFC world. Its strong fundamentals and enticing growth prospects are enough to send it skyward, and they've got the target price of Rs 800 to prove it. Keep your eyes peeled for this baby to deliver 23% returns in the coming year!
[1] Motilal Oswal Research Report, Accessed on August 10, 2023[2] Money Control, "Shriram Transport Finance takes on Sadbhav Engineering for Paradeep Port acquisition", June 13, 2023[3] BloombergQuint, "Shriram Transport Finance posts record profit, owing to recoveries, cost cuts", May 3, 2023[4] Business Standard, "Shriram Transport Finance Q4 net profit up 17.43% YoY at Rs 499.04 crore", May 4, 2023
- Taking advantage of the potential 23% returns in the coming year, investors might consider adding Shriram Finance, the top-pick among non-banking finance companies (NBFCs) by Motilal Oswal, to their portfolios.
- The improving market sentiment towards Shriram Finance is backed by various factors, including the company's strong focus on rural lending, which aligns with expectations of a bountiful monsoon and increased government capital expenditure (capex).
- Anticipated improvements in margins and slashed borrowing costs for Shriram Finance are largely due to the expected recession of liquidity issues resulting from substantial foreign currency borrowings, leading to a tidier balance sheet and a potential boost in net interest margins.
- Positive earnings growth, return ratios, and market leadership, along with the potential for additional valuation expansion, make Shriram Finance an attractive investment opportunity for those seeking potential gains in the finance and investing sector.
- The decentralized finance (DeFi) space would likely benefit from the widespread interest in Shriram Finance and other traditional finance ventures, as investors increasingly search for lucrative opportunities for growth across various markets and financial arenas.
