Shriram Finance stock price target raised to ₹840 by CLSA on lower credit costs

CLSA raised its price target for Shriram Finance Ltd (NS:SHFL) to ₹840 from ₹735, maintaining an Outperform rating, following the non-banking financial company's Q2 FY26 earnings which slightly surpassed estimates due to lower credit costs. The company reported robust 16% AUM growth and 8% disbursement growth, driven by a 31% increase in gold loans and steady vehicle financing, alongside a 10 basis point margin improvement from reduced funding costs. Asset quality remained stable, and CLSA increased its fiscal years 2026-2028 estimates by 2-4%, reflecting these positive developments and upcoming leadership changes.

Analysis

CLSA has increased its price target for Shriram Finance Ltd (NS:SHFL) to ₹840 from ₹735, maintaining an Outperform rating, following robust Q2 FY26 results. The non-banking financial company's profit after tax slightly surpassed CLSA's estimates, primarily driven by lower credit costs. This positive performance underscores effective risk management and operational efficiency.

The company demonstrated strong operational growth, with Assets Under Management (AUM) expanding approximately 16% and disbursements growing 8%. This was significantly bolstered by a 31% increase in gold loans, alongside steady 14-15% growth in commercial and passenger vehicle segments. Furthermore, margins improved by 10 basis points quarter-over-quarter, attributed to a lower cost of funds, with additional benefits anticipated as excess liquidity declined.

Asset quality remained stable, evidenced by gross stage 3 assets at 4.6% and credit costs at 1.9%, which is below the company's guidance. CLSA has consequently raised its fiscal years 2026-2028 estimates by 2-4%, reflecting confidence in the company's sustained performance and improved financial metrics. The upcoming leadership transition, with Parag Sharma assuming the MD & CEO role, also signals strategic continuity.

Key Decisions for Investors

• Investors should monitor SHFL's continued execution on growth drivers, particularly gold loans and vehicle financing, given the raised price target and Outperform rating.
• Evaluate the impact of the upcoming leadership changes on strategic direction and operational efficiency, although internal promotions suggest continuity.
• Assess the sustainability of margin improvement and credit cost management, as these were key contributors to the Q2 FY26 earnings beat and positive outlook.