The quarter's performance reflects the company's ability to sustain strong asset under management (AUM) growth whilst navigating margin compression challenges typical of the current interest rate environment. With interest income rising 13.76% year-on-year to ₹12,170.76 crores and sequential profit growth maintaining momentum, Shriram Finance demonstrates operational resilience even as year-on-year profit declined 22.09% from an exceptionally high base in Q3 FY25.
The December quarter results underscore Shriram Finance's strategic positioning in India's commercial vehicle financing ecosystem, where the company has built formidable competitive advantages through its extensive distribution network and deep understanding of the transport sector. The sequential profit improvement of 9.31% from Q2 FY26's ₹2,314.17 crores demonstrates management's ability to drive operational efficiency even as the year-on-year comparison reflects normalisation from an exceptionally strong Q3 FY25 base that benefited from one-time factors.
| Quarter | Interest Income (₹ Cr) | Net Profit (₹ Cr) | PAT Margin (%) | QoQ Change |
|---|---|---|---|---|
| Dec'25 | 12,170.76 | 2,529.65 | 20.98% | +9.31% |
| Sep'25 | 11,912.44 | 2,314.17 | 19.64% | +7.17% |
| Jun'25 | 11,536.32 | 2,159.40 | 18.89% | +0.73% |
| Mar'25 | 11,454.23 | 2,143.77 | 19.03% | -33.97% |
| Dec'24 | 10,698.31 | 3,246.85 | 30.52% | +51.69% |
| Sep'24 | 10,089.54 | 2,140.40 | 20.73% | +5.81% |
| Jun'24 | 9,604.98 | 2,022.80 | 20.83% | — |
Financial Performance: Steady Growth Amidst Margin Normalisation
Shriram Finance's Q3 FY26 financial performance reveals a company successfully balancing growth imperatives with profitability objectives. Interest income of ₹12,170.76 crores represents the highest quarterly figure in the company's history, reflecting sustained AUM expansion and healthy disbursement momentum across its core commercial vehicle financing and diversified lending portfolios. The 2.17% sequential growth and 13.76% year-on-year increase demonstrate consistent market share gains in a competitive NBFC landscape.
Operating profit before depreciation, interest, and tax (PBDIT) excluding other income stood at ₹8,773.73 crores in Q3 FY26, maintaining a robust operating margin of 72.91%. Whilst this represents a 195 basis points sequential decline from Q2 FY26's 74.86%, the margin remains well within the company's historical range of 71-73%, indicating stable core lending economics. The year-on-year operating margin expansion of 53 basis points from 72.38% in Q3 FY25 underscores improving operational leverage as the business scales.
Interest expenses of ₹5,259.35 crores in Q3 FY26 declined 4.80% sequentially from Q2 FY26's ₹5,524.83 crores, reflecting proactive liability management and favourable shifts in the funding mix. This cost-of-funds improvement, despite rising interest income, contributed significantly to the sequential profit acceleration. However, the 10.69% year-on-year increase in interest costs from ₹4,751.26 crores in Q3 FY25 highlights the cumulative impact of monetary tightening cycles on the company's borrowing expenses.
Profit after tax (PAT) margin expanded to 20.98% in Q3 FY26 from 19.64% in Q2 FY26, a 134 basis points sequential improvement driven by better interest expense management and stable credit costs. The year-on-year PAT margin comparison shows a 952 basis points contraction from Q3 FY25's exceptional 30.52%, primarily attributable to normalisation from one-time gains that inflated the prior year's base. The current margin profile aligns with the company's sustainable long-term trajectory.
Asset Quality & Capital Efficiency: Navigating Growth-Quality Balance
Shriram Finance's balance sheet strength remains a cornerstone of its investment thesis, with shareholder funds expanding to ₹56,469.82 crores as of March 2025, up 15.37% from ₹48,947.17 crores in the previous fiscal year. This capital base supports an extensive loan book whilst maintaining regulatory capital adequacy ratios well above minimum requirements. The company's debt-to-equity ratio of 3.87 times, though elevated in absolute terms, represents industry-standard leverage for NBFCs focused on secured lending against commercial vehicles.
Return on equity (ROE) of 14.34% in the latest period, with a five-year average of 14.00%, reflects respectable capital efficiency for a large-cap NBFC operating in the commercial vehicle financing segment. Whilst this ROE profile trails some consumer-focused NBFCs commanding 18-20% returns, it appropriately reflects Shriram Finance's business model prioritising asset quality and sustainable growth over aggressive return maximisation. The company's ability to maintain mid-teens ROE whilst growing its loan book at 20%+ annual rates demonstrates disciplined underwriting standards.
Return on capital employed (ROCE) of 11.39% indicates efficient deployment of total capital, including both equity and debt, to generate operating profits. This metric, calculated as earnings before interest and tax (EBIT) minus other income divided by capital employed net of cash and current investments, provides insight into the company's core lending profitability before considering its capital structure. The ROCE profile reflects the capital-intensive nature of NBFC operations and the competitive dynamics in commercial vehicle financing.
Balance Sheet Fortress
Shareholder Funds: ₹56,469.82 crores (up 15.37% YoY)
Debt-to-Equity: 3.87x (stable and manageable)
ROE: 14.34% (5-year average: 14.00%)
ROCE: 11.39% (healthy capital deployment efficiency)
The company maintains a robust capital structure with no long-term debt on the balance sheet, relying instead on diversified short-term borrowings and securitisation to fund its asset growth. This liability profile provides flexibility whilst maintaining competitive funding costs.
NBFC Sector Dynamics: Commercial Vehicle Financing Resilience
India's non-banking financial company sector continues to demonstrate resilience despite macroeconomic headwinds, with commercial vehicle financing emerging as a particularly attractive segment given its secured nature and essential role in the economy's logistics infrastructure. Shriram Finance's leadership position in this niche, built over decades through deep distributor relationships and specialised underwriting expertise, provides sustainable competitive advantages that translate into consistent market share gains.
The commercial vehicle industry's cyclical recovery, supported by infrastructure development initiatives and replacement demand, creates a favourable backdrop for Shriram Finance's core business. The company's diversification into consumer finance, including two-wheeler loans and small business lending, provides additional growth vectors whilst maintaining the secured lending orientation that underpins its conservative risk profile. This strategic positioning enables Shriram Finance to capture opportunities across multiple customer segments without compromising asset quality standards.
Regulatory developments in the NBFC sector, including enhanced capital requirements and governance standards, favour large, well-capitalised players like Shriram Finance over smaller, undercapitalised competitors. The company's proactive compliance culture and robust risk management frameworks position it to navigate evolving regulatory expectations whilst continuing to grow its loan book. The increasing formalisation of India's transport sector, driven by GST implementation and digital tracking requirements, further strengthens the addressable market for organised lenders.
Sector Leadership Metrics
Market Position: #2 in NBFC sector by market capitalisation (₹1,89,569 crores)
5-Year Sales CAGR: 22.00% (significantly above sector average)
5-Year EBIT CAGR: 22.80% (consistent profitability growth)
Institutional Holdings: 68.52% (strong institutional confidence)
Shriram Finance's scale advantages, distribution reach, and specialised expertise in commercial vehicle financing create formidable barriers to entry that protect its market leadership position and support sustainable long-term growth.
Peer Comparison: Valuation Premium Justified by Quality
Shriram Finance's positioning within the NBFC peer group reveals a company trading at reasonable valuations relative to its growth profile and asset quality metrics. With a price-to-earnings ratio of 21.79x, the stock trades at a significant discount to consumer-focused NBFCs like Bajaj Finance (32.06x) and Cholamandalam Investment and Finance (30.27x), whilst commanding a modest premium to Muthoot Finance (21.22x), which operates primarily in the gold loan segment.
The company's price-to-book value of 3.12x appears attractive when contextualised against its 14.00% average ROE and consistent profitability track record. Peers like Bajaj Finance command 5.69x price-to-book multiples justified by superior 18.15% ROE, whilst Muthoot Finance's 4.72x multiple reflects its 20.04% ROE profile. Shriram Finance's valuation discount to these consumer-focused peers appropriately reflects the lower but more stable return profile inherent in commercial vehicle financing versus unsecured consumer lending.
Dividend yield of 1.02% positions Shriram Finance favourably within the peer group, exceeding Bajaj Finance's 0.59% and Cholamandalam's 0.12% yields. The company's consistent dividend policy, with a latest payout of ₹4.80 per share, demonstrates management's confidence in cash generation and commitment to shareholder returns. The combination of capital appreciation potential and steady dividend income enhances the stock's total return proposition for long-term investors.
| Company | P/E (TTM) | P/BV | ROE (%) | Div Yield (%) | Debt/Equity |
|---|---|---|---|---|---|
| Shriram Finance | 21.79 | 3.12 | 14.00 | 1.02 | 3.87 |
| Bajaj Finance | 32.06 | 5.69 | 18.15 | 0.59 | 3.85 |
| Jio Financial | 105.49 | 1.24 | 1.18 | 0.19 | 0.08 |
| Muthoot Finance | 21.22 | 4.72 | 20.04 | 0.67 | 3.76 |
| Tata Capital | 41.44 | 4.19 | — | — | — |
| Cholamandalam | 30.27 | 5.42 | 17.68 | 0.12 | 7.23 |
Shriram Finance's competitive positioning becomes clearer when examining the debt-to-equity ratios across peers. Its 3.87x leverage matches Bajaj Finance's 3.85x and sits below Muthoot Finance's 3.76x, indicating comparable balance sheet structures amongst established NBFCs. This leverage profile, substantially lower than Cholamandalam's 7.23x, reflects conservative financial management that prioritises stability over aggressive growth funded by excessive debt.
Valuation Analysis: Fair Value with Upside Potential
At the current market price of ₹1,003.45, Shriram Finance trades at valuations that reflect its quality fundamentals whilst offering reasonable upside potential for patient investors. The stock's price-to-earnings ratio of 21.79x represents a 142% premium to the broader NBFC sector's average P/E of 9x, justified by the company's superior growth trajectory, market leadership position, and consistent execution track record. However, this premium remains modest compared to consumer finance peers commanding 30-40x earnings multiples.
The company's price-to-book value of 3.12x appears reasonable when benchmarked against its 14.34% ROE, implying a price-to-book-to-ROE ratio of approximately 0.22x. This metric, though higher than the ideal 1.0x threshold that would indicate perfect alignment between valuation and return profile, reflects market recognition of Shriram Finance's franchise value and growth potential. The valuation assessment categorises the stock as "Fair," having transitioned from "Expensive" in October 2025, indicating improved risk-reward dynamics following recent price consolidation.
Enterprise value multiples provide additional perspective on Shriram Finance's valuation. The EV/EBITDA ratio of 12.49x and EV/EBIT of 12.75x suggest the market values the company's operating earnings at levels consistent with established financial services franchises. The EV/Sales ratio of 9.07x, whilst appearing elevated in absolute terms, appropriately reflects the high operating leverage inherent in the NBFC business model where incremental revenue flows through to profits at attractive margins.
The PEG ratio of 2.05x, calculated by dividing the P/E ratio by the earnings growth rate, indicates the stock trades at a premium to its growth rate. Whilst a PEG ratio below 1.0x typically signals undervaluation, Shriram Finance's ratio above 2.0x suggests investors are pricing in optimistic growth expectations. This metric warrants monitoring, as any disappointment in earnings growth could trigger multiple compression and price weakness.
Shareholding Dynamics: Institutional Confidence Shifts
Shriram Finance's shareholding pattern reveals significant institutional activity in recent quarters, with notable shifts between foreign institutional investors (FIIs) and domestic institutional investors (DIIs). FII holdings declined from 53.58% in March 2025 to 47.22% in December 2025, a cumulative reduction of 636 basis points over three quarters. This selling pressure from foreign investors, totalling approximately 1,120 FII accounts, contributed to the stock's consolidation phase during this period.
Offsetting the FII exodus, mutual fund holdings surged from 9.98% in March 2025 to 14.39% in December 2025, an impressive 441 basis points increase representing strong domestic institutional buying. This shift from foreign to domestic ownership suggests Indian fund managers view the current valuation as attractive and have conviction in Shriram Finance's long-term growth prospects. The presence of 44 mutual fund schemes holding the stock indicates broad-based domestic institutional support rather than concentration risk.
Promoter holding remains stable at 25.38% in December 2025, with negligible quarter-on-quarter changes demonstrating management's commitment to maintaining their stake. The absence of any promoter pledging provides additional comfort regarding corporate governance and financial stability. Key promoter entities include Shriram Capital Private Limited (17.84%) and Shriram Value Services Limited (7.11%), both integral parts of the broader Shriram Group ecosystem.
| Shareholder Category | Dec'25 | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|---|
| Promoter | 25.38% | 25.39% | 25.39% | 25.40% | -0.01% |
| FII | 47.22% | 49.61% | 52.62% | 53.58% | -2.39% |
| Mutual Funds | 14.39% | 11.94% | 10.52% | 9.98% | +2.45% |
| Insurance | 3.95% | 4.07% | 3.51% | 3.17% | -0.12% |
| Other DII | 2.96% | 2.64% | 2.30% | 2.19% | +0.32% |
| Non-Institutional | 6.10% | 6.34% | 5.65% | 5.69% | -0.24% |
The combined institutional holding of 68.52% (including FIIs, mutual funds, insurance companies, and other DIIs) underscores the stock's appeal to sophisticated investors who conduct rigorous due diligence. This high institutional ownership provides liquidity and reduces volatility from retail investor sentiment swings. The ongoing rotation from FII to DII ownership may actually benefit long-term price stability, as domestic institutions typically exhibit lower portfolio turnover compared to foreign investors prone to emerging market allocation shifts.
Stock Performance: Exceptional Returns with Recent Consolidation
Shriram Finance's stock performance over the past year exemplifies the wealth creation potential of quality financial services franchises operating in high-growth markets. The 89.28% one-year return vastly outperforms the Sensex's 6.56% gain, generating an impressive alpha of 82.72 percentage points. This outperformance extends across multiple timeframes, with the stock delivering 53.42% returns over six months (alpha of 54.86%) and 41.31% over three months (alpha of 44.88%), demonstrating sustained momentum rather than episodic spikes.
Longer-term performance metrics reveal even more compelling wealth creation, with two-year returns of 120.09%, three-year returns of 290.34%, and five-year returns of 335.77%. The five-year alpha of 268.95 percentage points against the Sensex illustrates how Shriram Finance has consistently delivered value to shareholders who maintained conviction through market cycles. The ten-year return of 567.05% transforms a ₹1 lakh investment in January 2016 into approximately ₹6.67 lakhs, excluding dividends.
Recent price action shows the stock trading at ₹1,003.45, just 2.10% below its 52-week high of ₹1,025.00 reached recently, and 97.16% above its 52-week low of ₹508.95. This positioning near all-time highs reflects market recognition of the company's strong fundamentals and growth trajectory. The stock trades above all key moving averages—5-day (₹999.62), 20-day (₹989.50), 50-day (₹904.44), 100-day (₹785.89), and 200-day (₹718.57)—indicating robust technical strength and bullish sentiment.
| Period | Stock Return | Sensex Return | Alpha | Outperformance |
|---|---|---|---|---|
| 1 Week | 0.79% | -2.43% | +3.22% | ✓ |
| 1 Month | 4.76% | -4.66% | +9.42% | ✓ |
| 3 Months | 41.31% | -3.57% | +44.88% | ✓ |
| 6 Months | 53.42% | -1.44% | +54.86% | ✓ |
| YTD | 0.73% | -4.32% | +5.05% | ✓ |
| 1 Year | 89.28% | 6.56% | +82.72% | ✓ |
| 2 Years | 120.09% | 15.87% | +104.22% | ✓ |
| 3 Years | 290.34% | 33.80% | +256.54% | ✓ |
| 5 Years | 335.77% | 66.82% | +268.95% | ✓ |
Risk-adjusted returns provide additional context for evaluating Shriram Finance's performance. The one-year risk-adjusted return of 2.73 significantly exceeds the Sensex's 0.58, indicating superior returns per unit of risk assumed. However, the stock's volatility of 32.76% classifies it as "HIGH RISK HIGH RETURN," substantially above the Sensex's 11.24% volatility. Investors must weigh the exceptional return potential against elevated price fluctuations inherent in mid-cap financial services stocks.
Investment Thesis: Quality Growth at Reasonable Valuations
Shriram Finance's investment thesis rests on four pillars: sustainable competitive advantages in commercial vehicle financing, consistent execution delivering 20%+ growth rates, improving return metrics as the business scales, and reasonable valuations relative to growth and quality. The company's proprietary Mojo score of 72/100 reflects strong fundamentals with room for multiple expansion as the market recognises the durability of its franchise.
The "BUY" rating, upgraded from "HOLD" in October 2025, reflects improving risk-reward dynamics following the stock's consolidation phase. Key strengths supporting this positive outlook include strong long-term fundamental strength with 14.00% average ROE, healthy growth with 22.00% sales CAGR and 22.80% operating profit CAGR, record quarterly metrics across revenue and profitability, and high institutional holdings of 68.52% indicating sophisticated investor confidence.
The primary concern tempering enthusiasm centres on valuation metrics, particularly the PEG ratio of 2.05x indicating the stock trades at a premium to its growth rate. This valuation premium requires continued strong execution to justify, leaving limited margin for disappointment. Additionally, the company's exposure to commercial vehicle cycles introduces earnings volatility risk during economic downturns, though the diversification into consumer finance provides partial mitigation.
"Shriram Finance exemplifies how specialised expertise, distribution scale, and disciplined execution can create sustainable competitive advantages in India's fragmented NBFC sector, delivering consistent mid-teens returns on equity whilst growing the loan book at 20%+ annual rates."
Key Strengths & Risk Factors
KEY STRENGTHS
- Market Leadership: #2 position in NBFC sector with ₹1,89,569 crore market capitalisation and decades of commercial vehicle financing expertise
- Consistent Growth: 22.00% sales CAGR and 22.80% EBIT CAGR over five years demonstrate sustainable business model
- Strong ROE Profile: 14.34% current ROE with 14.00% five-year average reflects efficient capital deployment and healthy profitability
- Record Quarterly Performance: Q3 FY26 delivered highest-ever interest income of ₹12,170.76 crores and net profit of ₹2,529.65 crores
- Robust Institutional Support: 68.52% institutional holdings with increasing domestic mutual fund participation (14.39%)
- Stable Balance Sheet: Debt-to-equity of 3.87x within industry norms, zero long-term debt, and no promoter pledging
- Attractive Dividend Yield: 1.02% yield with ₹4.80 per share payout demonstrates commitment to shareholder returns
KEY CONCERNS
- Elevated Valuation Metrics: PEG ratio of 2.05x indicates stock trades at premium to growth rate, limiting margin of safety
- YoY Profit Decline: 22.09% year-on-year profit drop in Q3 FY26 from exceptionally high Q3 FY25 base raises normalisation concerns
- Margin Compression Risk: Operating margin declined 195 bps sequentially to 72.91%, requiring monitoring for sustained pressure
- High Stock Volatility: 32.76% volatility classifies stock as "HIGH RISK HIGH RETURN," unsuitable for conservative investors
- FII Selling Pressure: 636 bps decline in FII holdings over three quarters from 53.58% to 47.22% indicates foreign investor concerns
- Cyclical Business Exposure: Commercial vehicle financing tied to economic cycles and freight demand fluctuations
- Interest Rate Sensitivity: Rising funding costs evidenced by 10.69% YoY increase in interest expenses to ₹5,259.35 crores
Outlook: What to Watch
POSITIVE CATALYSTS
- Sustained AUM growth above 15% annually driven by market share gains and sector tailwinds
- Margin stabilisation or expansion from improved funding mix and operating leverage benefits
- Continued domestic institutional buying to offset FII selling and provide price support
- Asset quality metrics remaining stable with controlled credit costs despite loan book growth
- Successful diversification into consumer finance segments expanding revenue streams
RED FLAGS TO MONITOR
- Further sequential margin compression below 72% indicating structural profitability challenges
- Deterioration in asset quality metrics or rising provisioning requirements impacting profitability
- Continued FII selling pressure without corresponding DII buying creating supply-demand imbalance
- Slowdown in commercial vehicle sales or freight demand signalling cyclical headwinds
- Inability to maintain 20%+ growth rates leading to PEG ratio expansion and valuation concerns
The Verdict: Quality NBFC Franchise at Fair Valuations
Score: 72/100
For Fresh Investors: Shriram Finance represents an attractive entry point for investors seeking exposure to India's commercial vehicle financing sector through an established market leader. The stock's recent consolidation following exceptional one-year returns of 89.28% has improved risk-reward dynamics, with current valuations of 21.79x P/E and 3.12x P/BV appearing reasonable relative to 14.34% ROE and 22%+ growth rates. Accumulate on dips towards ₹950-975 levels for optimal entry, with a 12-18 month investment horizon to capture the next leg of growth as quarterly performance momentum sustains.
For Existing Holders: Maintain positions with confidence given the company's strong fundamentals, market leadership position, and positive financial trend. The upgrade from HOLD to BUY rating in October 2025 validates the investment thesis, whilst record quarterly metrics in Q3 FY26 demonstrate operational excellence. Consider adding on any weakness below ₹980, as the combination of 1.02% dividend yield and capital appreciation potential offers compelling total returns. Long-term holders should remain patient through short-term volatility, focusing on the company's ability to compound shareholder wealth at mid-teens rates over multi-year periods.
Fair Value Estimate: ₹1,100-1,150 (9-15% upside from current levels of ₹1,003.45)
Shriram Finance's investment case rests on sustainable competitive advantages in a growing market, consistent execution delivering 20%+ growth, and reasonable valuations that provide margin of safety. The primary risks centre on valuation premium requiring continued strong execution and cyclical exposure to commercial vehicle demand. For investors with appropriate risk tolerance and 2-3 year investment horizons, the stock offers an attractive opportunity to participate in India's financial sector growth through a quality franchise trading at fair valuations.
Note: ROCE = (EBIT - Other income) / (Capital Employed - Cash - Current Investments)
⚠️ 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. Past performance does not guarantee future results. Investing in equities involves risks, including the potential loss of principal. The views expressed herein are subject to change without notice and do not constitute a recommendation to buy or sell any securities.
