Shriram Finance Q4FY25 Breakout: Explosive MSME Growth, Strong AUM Surge & Why This Stock Could Soar in 2025 29.04.2025

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Shriram Finance’s Q4FY25: Navigating Uncertainty with Grit & Growth — Is This the Underdog NBFC of 2025?

Introduction: In a landscape clouded by rising credit costs and liquidity overhang, Shriram Finance (SHFL) has emerged with resilience, optimism, and data-driven decision-making. The Q4FY25 earnings may have landed “in-line,” but beneath the surface lies a compelling narrative of strategic recalibration, sectoral pivots, and rural-focused expansion. Investors, this isn’t just another NBFC story—this is a revival saga with legs to run.

Let’s break it down, human to human, numbers to narratives.

• Big Picture First: Why This Quarter Mattered

  • Q4FY25 PAT rose to INR 21.4 bn—a modest +2.8% QoQ, +9.9% YoY, right on the mark.
  • Net Interest Income (NII) grew +3.9% QoQ and +14.3% YoY to INR 60.5 bn.
  • NIM contraction of 23bps QoQ was the biggest red flag, dragged by INR 310 bn liquidity glut and higher ECB borrowings.
  • Asset quality strengthened, with GS3 down to 4.55% (from 5.38%) due to strategic INR 23.45 bn write-offs.
  • Disbursements at INR 448.48 bn, up 14.4% YoY, show business momentum despite macro drag.

• Let’s Talk Sentiment: Risk Clouded, Confidence Shines

Investor Mood: Cautiously Optimistic

  • Sentiment Score: +0.45 (Positive Bias)
    Despite margin pressure, analysts remain constructive. Why? Because SHFL’s management has consistently guided towards normalized liquidity and credit costs under 2%. The target price is revised upward to INR 734, implying a 12% upside from CMP 655.

Market Confidence Triggers:

  • Stable asset quality metrics
  • MSME & Personal Loans traction
  • Rural monetization + better Rabi yields
  • Margin recovery path intact

• Sectoral Deep-Dive: What’s Driving SHFL’s Engine?

▸ MSME Lending: Small Biz, Big Impact

  • 42.7% YoY AUM growth, now 14.7% of the total portfolio
  • 70–80% loans are property-backed, with IRRs of 16–24%
  • This segment is the company’s golden goose, despite expected moderation to 20%+ in FY26

▸ Personal Loans & 2-Wheelers: Risk-Managed Rebound

  • PLs rebounded +11.1% QoQ as industry stress peaked
  • Focus on low-risk 2W borrowers with proven repayment history

▸ Farm Equipment: Strongest Growth Spark

  • +40.1% YoY AUM growth—benefiting from monsoon rebound & cash flows

▸ Commercial Vehicles: Cautious Optimism

  • +2.4% QoQ, +10.9% YoY
  • Weak capex hurt new CV sales, but replacement & used vehicle finance are picking up

• Financials Snapshot: Eyes on FY26 & Beyond

  • FY26 Guidance:

    • NIM: 8.4–8.6%
    • AUM growth: 15%+
    • Credit cost: ~2% or lower
    • ROE: 16.6–17.1%
    • ROA: 3.2% steady

  • Capital Adequacy:

    • Tier-1 at 27.3%
    • CRAR at 30.8%

  • Valuation Perspective:

    • P/E (FY26E): 12.3x, P/ABV: 1.9x FY27E
    • Room for rerating if credit costs are tamed

• Key Growth Levers Ahead

  • Liquidity Normalization:

    • INR 310bn excess to normalize to ~INR 190bn in next 2 quarters
    • Expected 25bps boost to margins

  • Geographic Expansion:

    • 3,219 branches (53% rural) across India
    • Increased penetration in Chhattisgarh, Bihar, MP, despite temporary stress

  • Digital + Used Vehicle Play:

    • Used vehicle financing likely to scale
    • Revenue from repossessed vehicles rising via Shriram Automall

• Visuals Worth Sharing (Ideas for Charts):

  • AUM Mix by Segment & YoY Change
  • NIM Trend vs. Cost of Borrowing
  • Credit Cost Trajectory (Last 6 Quarters)
  • Sentiment Meter: Analyst Bias + Social Buzz

• Final Take: Is SHFL a Buy, Hold, or Wait?

Answer:
Accumulate—this is not a sprint, it’s a marathon. With tailwinds from MSME strength, margin recovery, and rural resurgence, Shriram Finance has the fundamentals and firepower to outperform.


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