Shriram Finance saw strong growth in the fourth quarter of financial year 2026 (Q4FY26), but there was minor deterioration in asset quality. The FY26 asset under management (AUM) rose 15 per cent year-on-year (Y-o-Y), while net profit was up 21 per cent Y-o-Y at ₹10,000 crore. Q4FY26 net profit rose 41 per cent Y-o-Y to ₹3,010 crore as net interest income (NII) grew 21 per cent Y-o-Y to ₹6,750 crore. Other income declined 34 per cent Y-o-Y to ₹440 crore.
The operating expenditure (opex) declined 2 per cent Y-o-Y to ₹1,870 crore, due to sequentially lower employee expenses (Q3 had a one-time impact from labour code). Transaction costs like direct selling agent (DSA) commissions in two-wheeler loans are now being amortised over the loan tenure from January 2026. Hence, fees and commission expenses were lower by ₹51 crore.
The company guided for a cost to income (CI) ratio of 26-27 per cent, with operating costs to grow at 10-12 per cent over the medium term. The Q4 pre-provision operating profit (PPOP) grew 23 per cent Y-o-Y to ₹5,330 crore. The FY26 PPOP grew 15 per cent Y-o-Y to ₹18,630 crore. Credit costs in Q4 stood at ₹1,410 crore, which annualises to credit costs of 1.9 per cent.
Management guided for medium-term loan growth at 18 per cent, but given headwinds, it is guiding at 15-18 per cent Y-o-Y loan growth in FY27.
The FY26 performance saw healthy AUM and earnings growth, stable asset quality, and controlled costs. Risks to growth could arise from geopolitical volatility. In FY27, passenger vehicle loans could rise by over 20 per cent, gold loans by 30 per cent, commercial vehicle loans are expected to grow at 15-18 per cent, while MSME segment could grow at 13-15 per cent subject to macro stability.
MUFG Bank acquiring a 20 per cent equity stake at a price of ₹840.93 per share, significantly strengthens capital adequacy and is described as “transformational”. Capital adequacy is at 20 per cent and will rise to 34 per cent after equity infusion, with a leverage ratio of 3.2 times.
Increasing share of new vehicle financing, alongside continued strength in used vehicles and rising penetration in personal loans should support disbursements. Gold loans will scale with distribution expansion, while MSME growth could be hurt by external uncertainties. The company plans to increase its workforce to 80,000 employees over the next few quarters, to support gold loan expansion.
Asset quality saw marginal rise in slippages, driven by temporary cash flow mismatches. Management expects normalisation in slippages. The reported net interest margins (NIMs) rose 3 basis points quarter-on-quarter (Q-o-Q) to 8.6 per cent. Yields as calculated declined Q-o-Q by 25 basis points to 16.3 per cent, while cost of borrowing declined 15 basis points Q-o-Q to 8.5 per cent, with spreads of 7.8 per cent. Incremental borrowing is at around 7.2 per cent.
Margins are expected to remain steady with gradual spread expansion, though reduced cost of borrowing will be selectively passed on. A credit rating upgrade is expected to further reduce the borrowing cost. Management guided for overall borrowing cost to decline by 100 basis points over the next two-three years and spreads could expand by 100 basis points over FY27.
The Gross Stage 3 (GS3) rose 4 basis points Q-o-Q to 4.6 per cent while Net Stage 3 (NS3) improved 5 basis points Q-o-Q to 2.3 per cent. Net slippages increased 45 basis points Q-o-Q to 1.8 per cent, while Stage 2 assets rose 13 basis points Q-o-Q to 6.9 per cent and 30 days rose 17 basis points Q-o-Q. The provision coverage ratio (PCR) on Stage 3 rose 160 basis points Q-o-Q to 50 per cent.
The company targets AUM growth of 18 per cent, supported by fresh equity infusion and steady momentum. Future guidance will be reassessed on macro conditions, such as the West Asia conflict, fuel prices and monsoon trends. NIMs are expected to remain in the range of 8.5-9.0 per cent, aided by reduction in cost of funds. Spread is expected to improve to 8.4-8.5 per cent in FY27. The cost to income ratio is guided at 26-27 per cent, while operating expenses are to grow at 10-12 per cent Y-o-Y over the medium term.
Credit costs are not seen as a major concern and will be revisited after Q1FY27. Fleet utilisation remains healthy, and no concerns are visible, but slowdown in consumption could impact utilisation and resale values. Demand for used vehicles is expected to remain strong, while tractor demand may soften due to monsoon-related concerns. Guidance implies steady improvement in growth and profitability.
