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ICICI Securities research report on Shriram Finance

Shriram Finance’s (Shriram) Q4FY25 financial performance was subdued with a sharp NIM contraction and a spike in credit cost. While headline asset quality improved with GNPL falling to 4.55% vs. 5.38% QoQ, this was driven by higher write-offs at >INR 20bn during Q4FY25. Management’s successful execution on balancing growth and credit cost derailed during Q4FY25 with credit cost exceeding its guidance of 2% and settling at 2.4% in Q4FY25. It attributes this to temporary slowdown in the CV portfolio in central India (certain pockets of UP, Bihar & MP) but also highlighted that the same is transient and sounded confident of maintaining full-year FY26 credit cost at 2%. The merger brought with it second wind for growth, which is progressively convalescing – FY25 growth at 17% YoY vs. STFC’s timid FY19–23 spell of 9%/5%/7%/8%/14% on a standalone basis.

Outlook

Amid a challenging operating environment, we believe AUM growth would remain at 15% in FY26E/FY27E vs. 17% in FY25; higher forward flows in Q4FY25 also pose a risk to FY26 credit cost guidance of 2%. With this backdrop, we cut our FY26E/FY27E earnings by 4%/1% respectively, as we model marginally higher credit cost. We downgrade the stock to HOLD (Buy earlier) with a revised TP of INR 640 (INR 710 earlier), as we now value at 1.75x Sep’26E BVPS vs 2.2x on Sep’25E BVPS earlier.

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