Shriram Finance, Q2FY25

Shriram Finance Ltd (SFL), trading at ₹2,883 (as of 24 December 2024), presents a 30% upside with a target price of ₹3,825, based on a 2.2x FY27E Adjusted Book Value (ABV) valuation. The company’s Net Interest Income (NII) is projected to grow from ₹18,794 crore in FY24 to ₹30,150 crore in FY27, reflecting a 17% CAGR, while net profit is expected to rise from ₹7,190 crore in FY24 to ₹12,161 crore in FY27, at a 19% CAGR. Return on Assets (RoA) is forecasted to remain steady at ~3.2-3.3%, while Return on Equity (RoE) improves to 17% by FY27. Shriram Finance’s unique positioning in used commercial vehicle (CV) financing, with a ~30% market share, remains a strong growth driver. The company’s successful merger has diversified its portfolio, reduced cyclicality and driving healthy growth in non-vehicle segments like MSME, gold loans, and two-wheeler financing. The AUM is expected to grow at a 17% CAGR over FY24-FY27, supported by diversification and an expanding footprint in rural and semi-urban markets. The company’s capital adequacy ratio (CAR) of 22.6% and Tier-1 ratio of 20.3% provide a solid buffer for future growth. With strong asset quality, steady credit costs, and a well-diversified borrowing profile, Shriram Finance is well-positioned to deliver consistent performance. Trading at just 1.7x FY27E ABV, a significant discount compared to its peers, the stock offers a compelling valuation with significant upside potential, underpinned by its market leadership, diversified growth drivers, and consistent return metrics.