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Shriram Finance (CMP – ₹965, Mcap - ₹1,81,476 crore, BUY, Target - ₹ 1,200)

ICICIdirect Research 26 Dec 2025 DISCLAIMER

Shriram Finance’s board has approved preferential equity issue of about ₹39,618 crore to Japan’s MUFG Bank through the issuance of 47.1 crore shares at ₹840.9 per share, giving MUFG a 20% fully diluted stake, subject to regulatory and shareholder approvals. Post completion, MUFG Bank and the promoter group will each hold around 20% stake, with MUFG entitled to nominate up to two non-independent directors. The transaction also includes a $200 million non-compete fee, underscoring the long-term nature of the partnership.
The strategic investment significantly strengthens Shriram Finance’s balance sheet and enhances its parentage profile, which could accelerate a credit rating upgrade from the current AA+ / Stable. Management expects a stronger balance sheet and improved ratings to lower the cost of borrowings by up to 100 bps over time, supporting sustainable profitability and margin expansion
With MUFG’s backing, Shriram Finance has upgraded its long-term growth aspirations. The company has raised its internal AUM growth target to 18–20%, from the earlier 15% envisaged under its 2030 vision, implying a potential doubling of AUM in about three and half years. Given quarterly disbursements of nearly ₹50,000 crore, management sees no execution risk in deploying the incremental capital.
Operationally, the company remains focused on deepening penetration in underserved and rural markets. It plans to convert around 600 rural centers into full-fledged branches and add 100–150 branches annually, while continuing to enhance operating efficiency and reach. Shriram Finance reiterated that it has no intention of converting into a bank, maintaining its strategic focus on asset-backed lending to individuals and small operators where it holds a strong competitive advantage.

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