The quarter showcased strong operational momentum with net sales reaching an all-time high of ₹11,912.44 crores, marking an 18.07% year-on-year expansion and a sequential improvement of 3.26% from Q1 FY26. This performance underscores the company's ability to capitalise on India's expanding commercial vehicle financing market whilst maintaining healthy asset quality metrics.
The Shriram Group's flagship company has demonstrated consistent execution capabilities, with its diversified financial services portfolio spanning commercial vehicle finance, consumer finance, insurance, and asset management. The quarter's results reflect the company's strategic positioning in India's infrastructure-driven growth story, where commercial vehicle financing remains a critical enabler of economic activity.
Financial Performance: Sustained Revenue Growth Amid Margin Expansion
Shriram Finance's Q2 FY26 financial performance revealed a company firing on multiple cylinders. Net sales of ₹11,912.44 crores represented the highest quarterly revenue in the company's history, driven by robust disbursement activity and expanding loan book. The 18.07% year-on-year growth significantly outpaced the broader NBFC sector's expansion, whilst the 3.26% sequential improvement from Q1 FY26's ₹11,536.32 crores demonstrated sustained momentum through the quarter.
Operating profit (PBDIT) excluding other income reached ₹8,803.40 crores, marking a 21.37% year-on-year surge and establishing a new quarterly record. The operating margin expanded to 74.86%, up 27 basis points sequentially from 74.28% in Q1 FY26, reflecting improved operational efficiency and better pricing power. This margin performance is particularly noteworthy given the competitive intensity in the commercial vehicle financing segment.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | YoY Growth | Operating Margin |
|---|---|---|---|---|---|
| Sep'25 | 11,912.44 | +3.26% | 2,314.17 | +8.12% | 74.86% |
| Jun'25 | 11,536.32 | +0.72% | 2,159.40 | +6.75% | 74.28% |
| Mar'25 | 11,454.23 | +7.07% | 2,143.77 | +6.72% | 72.57% |
| Dec'24 | 10,698.31 | +6.03% | 3,246.85 | — | 72.38% |
| Sep'24 | 10,089.54 | +5.04% | 2,140.40 | — | 72.59% |
| Jun'24 | 9,604.98 | +1.28% | 2,022.80 | — | 73.02% |
| Mar'24 | 9,483.71 | — | 2,008.80 | — | 72.66% |
Profit before tax stood at ₹3,112.96 crores in Q2 FY26, up 7.11% sequentially from ₹2,906.23 crores in Q1 FY26, though comparisons with the previous year's Q2 are complicated by a one-time gain in Q2 FY25. The normalised profit trajectory shows consistent improvement, with the company maintaining a healthy PAT margin of 19.64%, up from 18.89% in the previous quarter. Interest costs rose to ₹5,524.83 crores from ₹5,400.76 crores sequentially, reflecting the company's expanding loan book and higher borrowing costs in the current rate environment.
Employee costs remained well-controlled at ₹945.33 crores, declining sequentially from ₹977.37 crores despite business expansion, indicating improving productivity metrics. The tax rate normalised to 25.80% in Q2 FY26 from 25.84% in Q1 FY26, aligning with the company's long-term effective tax rate expectations. Overall, the financial performance reflects a well-managed growth trajectory with improving operational leverage.
Quality of Earnings: Strong Core Performance
Shriram Finance's earnings quality remains robust, with operating profit generation significantly exceeding reported net profit. The company's PBDIT of ₹8,803.40 crores represents 3.81 times its net profit of ₹2,314.17 crores, indicating substantial coverage for interest and tax obligations. Other income contribution remained minimal at ₹8.89 crores, ensuring that profit growth is driven by core lending operations rather than treasury gains or one-time items.
Operational Excellence: Capital Efficiency and Balance Sheet Strength
Shriram Finance's operational metrics reveal a company that has successfully scaled its business whilst maintaining disciplined capital allocation. The company's return on equity (ROE) averaged 13.03% over the past five years, reflecting consistent profitability despite the capital-intensive nature of the NBFC business. The latest ROE of 14.67% represents an improvement over the historical average, indicating enhanced capital efficiency as the business matures.
The company's balance sheet has expanded significantly, with shareholder funds reaching ₹56,469.82 crores as of March 2025, up from ₹48,947.17 crores in the previous year. This 15.37% year-on-year growth in net worth provides a strong foundation for future loan book expansion. The company's book value per share stands at ₹299.30, with current market price of ₹748.80 representing a price-to-book ratio of 2.49 times, suggesting investors are willing to pay a premium for the company's franchise value and growth prospects.
✓ Key Operational Strengths
Expanding Loan Book: The company's assets under management continue to grow robustly, with investments rising to ₹15,787.96 crores as of March 2025 from ₹9,472.81 crores in the previous year, representing a 66.67% surge. Current assets stood at ₹25,932.47 crores, providing ample liquidity for business operations.
Improving Profitability: The company has demonstrated consistent improvement in return metrics, with the latest ROE of 14.67% exceeding the five-year average of 13.03%. This improvement reflects better asset utilisation and enhanced operating leverage as the business scales.
The company's debt-equity ratio stood at 4.15 times as of H1 FY26, which is typical for NBFCs given their business model of borrowing funds for onward lending. This leverage ratio, whilst appearing high in absolute terms, is well within regulatory limits and industry norms for commercial vehicle financing companies. The company's ability to service this debt is evidenced by its consistent profitability and strong interest coverage ratios.
Return on capital employed (ROCE) of 10.91% demonstrates the company's ability to generate returns above its cost of capital, creating value for shareholders. The five-year EBIT growth of 22.05% significantly exceeds the sales growth of 21.28%, indicating improving operational leverage and margin expansion over time. This operating leverage provides confidence in the company's ability to convert revenue growth into bottom-line expansion.
Asset Quality Analysis: Maintaining Portfolio Health
For any NBFC, asset quality remains the cornerstone of sustainable profitability, and Shriram Finance has historically maintained prudent underwriting standards in the commercial vehicle financing segment. Whilst specific non-performing asset (NPA) data for Q2 FY26 was not disclosed in the quarterly results, the company's consistent profitability and stable provision trends suggest that asset quality remains under control.
The company's operating profit margin expansion to 74.86% in Q2 FY26 from 74.28% in Q1 FY26 indicates that credit costs have not spiked during the quarter. In the NBFC sector, deteriorating asset quality typically manifests in compressed margins as companies increase provisioning. The absence of such compression, combined with stable tax rates and controlled employee costs, suggests that the underlying loan portfolio continues to perform satisfactorily.
⚠ Monitoring Points: Leverage and Sector Cyclicality
High Leverage Profile: The debt-equity ratio of 4.15 times, whilst industry-standard for NBFCs, exposes the company to interest rate risk and refinancing challenges during periods of monetary tightening. Any significant deterioration in funding conditions could pressure profitability margins.
Commercial Vehicle Cycle Exposure: The company's core business remains closely tied to commercial vehicle sales and freight activity, which are cyclical in nature. An economic slowdown or prolonged weakness in freight rates could impact disbursement growth and asset quality simultaneously.
The company's provisioning strategy appears conservative, with the steady profit growth suggesting that management is not deferring recognition of potential credit losses. The cash flow statement for FY25 showed negative operating cash flow of ₹43,651 crores, which is typical for a growing NBFC as loan disbursements exceed repayments. This was more than offset by financing cash flows of ₹44,521 crores, demonstrating the company's continued access to funding markets.
Industry Leadership: How Shriram Finance Compares to Peers
Within the competitive NBFC landscape, Shriram Finance occupies a distinctive position as a specialist in commercial vehicle and consumer finance. The company's valuation metrics reflect this positioning, trading at a significant discount to diversified financial services players whilst commanding a premium to pure-play vehicle financiers.
| Company | P/E Ratio (TTM) | P/BV Ratio | ROE (%) | Debt/Equity | Div Yield (%) |
|---|---|---|---|---|---|
| Shriram Finance | 16.66 | 2.49 | 13.03 | 4.15 | 1.32 |
| Bajaj Finance | 37.23 | 6.71 | 17.05 | 3.74 | 0.54 |
| Jio Financial | 121.18 | 1.58 | 1.31 | 0.03 | 0.16 |
| Cholamandalam Inv | 32.26 | 6.07 | 17.64 | 7.40 | 0.12 |
| Muthoot Finance | 20.69 | 4.34 | 20.32 | 3.38 | 0.82 |
Shriram Finance's P/E ratio of 16.66 times represents a substantial discount to diversified NBFCs like Bajaj Finance (37.23x) and Cholamandalam Investment (32.26x), reflecting the market's perception of higher execution risk in commercial vehicle financing compared to consumer lending. However, the company's ROE of 13.03%, whilst lower than some peers, has been improving steadily and is achieved with a more concentrated business model.
The price-to-book ratio of 2.49 times is the lowest among major NBFC peers, suggesting potential value for investors who believe in the company's ability to sustain its growth trajectory. The company's dividend yield of 1.32% is the highest in the peer group, reflecting a shareholder-friendly capital allocation policy. The recent dividend of ₹3 per share (ex-date July 11, 2025) demonstrates management's confidence in sustained cash generation.
Shriram Finance's debt-equity ratio of 4.15 times sits in the middle of the peer range, higher than Bajaj Finance's 3.74 times but significantly lower than Cholamandalam's 7.40 times. This moderate leverage position provides flexibility for growth whilst maintaining financial stability. The company's market capitalisation of ₹1.39 lakh crores positions it as the fifth-largest player in the NBFC peer group, with room for market share gains.
Valuation Analysis: Attractive Entry Point for Long-Term Investors
At the current market price of ₹748.80, Shriram Finance trades at a P/E ratio of 16.66 times trailing twelve-month earnings, representing a 28% discount to the industry average P/E of 23 times. This valuation gap appears unjustified given the company's improving operational metrics, consistent profit growth, and strong market position in commercial vehicle financing.
The company's PEG ratio of 1.36 suggests reasonable valuation relative to growth, with the five-year sales CAGR of 21.28% supporting current multiples. Historical valuation trends show the stock has oscillated between "Attractive" and "Fair" valuations over the past three months, with the current "Fair" assessment (as of October 15, 2025) reflecting the recent price appreciation.
Valuation Dashboard
P/E Ratio (TTM): 16.66x (28% discount to industry average of 23x)
Price to Book Value: 2.49x (Lowest among major NBFC peers)
EV/EBITDA: 11.21x (Reasonable for growth profile)
Dividend Yield: 1.32% (Highest in peer group)
Overall Assessment: FAIR valuation with upside potential
The stock's current price of ₹748.80 sits just 2.72% below its 52-week high of ₹769.75, indicating strong momentum, whilst representing a 51.70% premium to the 52-week low of ₹493.60. This price action reflects growing investor confidence in the company's earnings trajectory and sector positioning. The stock trades above all key moving averages—5-day (₹727.44), 20-day (₹686.90), 50-day (₹640.57), 100-day (₹648.77), and 200-day (₹631.40)—suggesting robust technical support.
Based on the company's improving ROE trajectory, consistent profit growth, and sector tailwinds, a fair value estimate of ₹820-850 appears reasonable over the next 12 months, implying 9-14% upside from current levels. This target assumes the company maintains its current growth momentum and the NBFC sector continues to benefit from India's infrastructure investment cycle.
Shareholding Pattern: Institutional Confidence Building
Shriram Finance's shareholding pattern reveals a well-diversified investor base with strong institutional participation. As of September 2025, institutional investors collectively held 68.27% of the company's equity, demonstrating high confidence from sophisticated investors in the company's long-term prospects.
| Category | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|
| Promoter | 25.39% | 25.39% | 25.40% | 0.00% |
| FII | 49.61% | 52.62% | 53.58% | -3.01% |
| Mutual Funds | 11.94% | 10.52% | 9.98% | +1.42% |
| Insurance | 4.07% | 3.51% | 3.17% | +0.56% |
| Other DII | 2.64% | 2.30% | 2.19% | +0.34% |
| Non-Institutional | 6.34% | 5.65% | 5.69% | +0.69% |
The most significant trend in Q2 FY26 was the 3.01 percentage point reduction in foreign institutional investor (FII) holdings, declining from 52.62% to 49.61%. This reduction, however, was absorbed by domestic institutional investors, with mutual fund holdings rising by 1.42 percentage points to 11.94%, insurance companies increasing their stake by 0.56 percentage points to 4.07%, and other domestic institutional investors adding 0.34 percentage points to reach 2.64%.
This shift from foreign to domestic institutional ownership is noteworthy and generally positive for stock stability. Domestic institutional investors, particularly mutual funds and insurance companies, tend to have longer investment horizons and better understanding of local business dynamics. The increase in mutual fund holdings from 9.98% in March 2025 to 11.94% in September 2025 represents growing conviction amongst domestic fund managers about the company's prospects.
Promoter holding remained stable at 25.39%, with the Shriram Group maintaining consistent ownership through Shriram Capital Private Limited (17.85%) and Shriram Value Services Limited (7.11%). The absence of promoter pledging provides additional comfort, indicating that controlling shareholders are not facing financial stress and remain committed to the company's long-term success.
Stock Performance: Sustained Outperformance Across Timeframes
Shriram Finance's stock has delivered exceptional returns across multiple timeframes, significantly outperforming both the benchmark Sensex and the broader NBFC sector. The stock's performance reflects growing recognition of the company's execution capabilities and improving financial metrics.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +4.65% | -0.32% | +4.97% |
| 1 Month | +15.41% | +3.65% | +11.76% |
| 3 Months | +18.46% | +3.39% | +15.07% |
| 6 Months | +22.57% | +4.61% | +17.96% |
| Year-to-Date | +29.33% | +7.42% | +21.91% |
| 1 Year | +19.33% | +5.73% | +13.60% |
| 2 Years | +99.41% | +31.41% | +68.00% |
| 3 Years | +204.79% | +38.18% | +166.61% |
| 5 Years | +440.49% | +111.89% | +328.60% |
The stock's recent performance has been particularly impressive, with a one-month return of 15.41% significantly outpacing the Sensex's 3.65% gain, generating alpha of 11.76 percentage points. This surge followed the company's strong Q1 FY26 results and improving sentiment towards the NBFC sector. The year-to-date return of 29.33% versus Sensex's 7.42% demonstrates sustained momentum throughout FY2026.
Over longer timeframes, the outperformance becomes even more pronounced. The three-year return of 204.79% represents more than five times the Sensex's 38.18% gain, whilst the five-year return of 440.49% dwarfs the benchmark's 111.89% advance. This long-term track record validates the investment thesis around India's commercial vehicle financing opportunity and Shriram Finance's ability to capitalise on it.
The stock's beta of 1.00 indicates it moves in line with the broader market on average, though recent performance suggests higher sensitivity to positive news flow. With volatility of 34.35% over the past year, the stock falls into the "high risk, high return" category, appropriate for investors with longer time horizons and higher risk tolerance. The positive Sharpe ratio indicates that returns have more than compensated for the elevated volatility.
"Shriram Finance's ability to deliver 440% returns over five years whilst maintaining consistent profitability and improving operational metrics demonstrates the power of focused execution in a growing market segment."
Investment Thesis: Quality Franchise at Reasonable Valuation
The investment case for Shriram Finance rests on several pillars: a dominant market position in commercial vehicle financing, consistent execution across economic cycles, improving capital efficiency, and reasonable valuation relative to growth prospects. The company's proprietary investment score of 75 out of 100 with a "BUY" rating reflects these positive attributes, having recently upgraded from "HOLD" on October 27, 2025.
The company's quality assessment of "GOOD" is supported by healthy long-term growth metrics, with five-year sales CAGR of 21.28% and operating profit CAGR of 22.05%. Management quality appears strong, with conservative accounting practices and transparent disclosure. The capital structure, whilst leveraged as typical for NBFCs, is well-managed with no concerning trends in debt servicing ability.
Mojo 4 Dots Analysis
Near-Term Drivers: POSITIVE ✓ (Quarterly financial trend positive, technicals bullish)
Quality: GOOD ✓ (Strong fundamentals, high institutional holdings, consistent growth)
Valuation: FAIR (Reasonably valued at 16.66x P/E, discount to peers)
Overall Assessment: POSITIVE (Three out of four parameters favourable)
The technical picture remains constructive, with the stock in a confirmed bullish trend since October 21, 2025. Multiple technical indicators including MACD, Bollinger Bands, and On-Balance Volume (OBV) signal bullish momentum on weekly charts. The stock's position above all major moving averages provides strong technical support, with immediate resistance at the recent 52-week high of ₹769.75.
Key Strengths & Risk Factors
✓ Key Strengths
- Market Leadership: Dominant position in commercial vehicle financing with extensive distribution network and deep customer relationships
- Consistent Growth: Five-year sales CAGR of 21.28% and operating profit CAGR of 22.05% demonstrate sustained execution capability
- Improving Profitability: ROE expanding to 14.67% from historical average of 13.03%, reflecting better capital efficiency
- Strong Institutional Support: 68.27% institutional holdings with increasing domestic investor participation
- Margin Expansion: Operating margin reached 74.86% in Q2 FY26, highest in recent quarters
- Attractive Valuation: Trading at 16.66x P/E, 28% discount to industry average, with 2.49x P/BV lowest among peers
- Shareholder-Friendly: Dividend yield of 1.32% highest in peer group, demonstrating commitment to returning cash to shareholders
⚠ Key Concerns
- High Leverage: Debt-equity ratio of 4.15x exposes company to interest rate risk and refinancing challenges
- Sector Cyclicality: Commercial vehicle financing tied to freight activity and economic cycles, vulnerable to downturns
- FII Selling: 3.01 percentage point reduction in FII holdings in Q2 FY26 could indicate concerns about growth sustainability
- Asset Quality Risks: Limited disclosure on specific NPA metrics requires monitoring for potential deterioration
- Competitive Intensity: Increasing competition from banks and fintech players in vehicle financing segment
- Regulatory Risks: RBI's evolving NBFC regulations could impact business model flexibility
- Concentration Risk: Heavy dependence on commercial vehicle segment limits diversification benefits
Outlook: What to Watch
Positive Catalysts
- Infrastructure Spending: Government's continued focus on infrastructure development supporting commercial vehicle demand
- Margin Sustainability: Operating margin holding above 74% for consecutive quarters
- Domestic Investor Interest: Rising mutual fund and insurance company holdings indicating growing confidence
- Technical Breakout: Stock trading above all moving averages with bullish technical indicators
- ROE Improvement: Return on equity trending upwards towards 15% levels
Red Flags to Monitor
- Asset Quality Slippage: Any uptick in NPA ratios or provisioning requirements
- Margin Compression: Operating margin falling below 73% for two consecutive quarters
- Growth Deceleration: Quarterly revenue growth declining below 10% YoY
- Continued FII Selling: Further reduction in foreign institutional holdings
- Rising Interest Costs: Interest expense growing faster than revenue, compressing profitability
Looking ahead, Shriram Finance's prospects remain tied to India's infrastructure investment cycle and commercial vehicle industry dynamics. The company's ability to maintain asset quality whilst growing its loan book will be critical. Investors should monitor quarterly disbursement trends, NPA ratios, and margin sustainability. The shift from FII to domestic institutional ownership bears watching, though the overall increase in institutional participation is encouraging.
The company's diversification efforts beyond commercial vehicle financing into consumer finance and other segments could provide additional growth avenues whilst reducing concentration risk. Management's track record of navigating economic cycles and maintaining profitability through downturns provides confidence in the sustainability of the current growth trajectory.
The Verdict: Attractive Risk-Reward for Long-Term Investors
Score: 75/100
For Fresh Investors: Shriram Finance presents an attractive entry opportunity at current levels. The combination of consistent execution, improving profitability metrics, reasonable valuation at 16.66x P/E (28% discount to industry), and positive technical momentum creates a compelling risk-reward profile. Investors with 2-3 year time horizons seeking exposure to India's infrastructure-driven growth should consider accumulating positions in the ₹730-760 range.
For Existing Holders: Continue holding with confidence. The recent upgrade to "BUY" rating from "HOLD" reflects improving fundamentals and positive earnings trajectory. The stock's position above all major moving averages provides technical support, whilst the 29.33% year-to-date return demonstrates strong momentum. Consider adding on any dips towards the 50-day moving average of ₹640 for long-term portfolio building.
Fair Value Estimate: ₹820-850 (9-14% upside potential over 12 months)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions.
