Is Shriram Finance overvalued or undervalued?

Valuation Metrics Indicate Fair Pricing

As of 28 Nov 2025, Shriram Finance’s price-to-earnings (PE) ratio stands at 18.4, a level that suggests reasonable valuation relative to its earnings. This is complemented by a price-to-book (P/B) ratio of 2.64, indicating that the stock trades at a moderate premium over its net asset value. The enterprise value to EBITDA (EV/EBITDA) ratio of 11.6 further supports the notion of fair valuation, as it is neither excessively high nor suggestive of undervaluation.

Additionally, the company’s PEG ratio of 1.73, which adjusts the PE ratio for earnings growth, points to a valuation that is aligned with its growth prospects. While not deeply undervalued, these figures collectively imply that Shriram Finance is priced fairly in the current market environment.

Strong Returns Outperforming Benchmarks

Investors have been rewarded handsomely over multiple time horizons. The stock has delivered a year-to-date return of 46.9%, significantly outpacing the Sensex’s 9.7% gain over the same period. Over the past five years, Shriram Finance’s cumulative return of nearly 297% dwarfs the Sensex’s 94%, highlighting its robust growth trajectory and operational strength.

Such strong performance often justifies a premium valuation, yet the recent downgrade to a fair valuation grade suggests that the market has tempered expectations, possibly factoring in broader economic conditions or sector-specific risks.

Peer Comparison Highlights Relative Valuation

When compared with peers in the NBFC and financial services sector, Shriram Finance’s valuation metrics appear moderate. For instance, Bajaj Finance and Bajaj Finserv are classified as very expensive and expensive respectively, with PE ratios nearly double that of Shriram Finance. Conversely, life insurance companies such as SBI Life Insurance and Life Insurance Corporation are considered very attractive or fair, but their business models and growth drivers differ significantly.

This relative positioning suggests that Shriram Finance offers a balanced risk-reward profile. Its return on capital employed (ROCE) of 11.4% and return on equity (ROE) of 14.3% are respectable, indicating efficient capital utilisation and profitability, which support its current valuation.

Stock Price and Dividend Yield Context

The stock currently trades near its 52-week high of ₹871, with a recent price around ₹850. This proximity to the peak price reflects investor confidence but also limits upside potential in the near term. The dividend yield of 1.21% is modest, suggesting that the company prioritises reinvestment and growth over high dividend payouts, a typical trait for growth-oriented NBFCs.

Conclusion: Fairly Valued with Growth Potential

In summary, Shriram Finance’s valuation metrics, peer comparisons, and strong historical returns collectively indicate that the stock is fairly valued at present. While it no longer commands the premium valuation it once did, the company’s solid fundamentals and consistent outperformance relative to the Sensex suggest it remains an attractive proposition for investors seeking exposure to the NBFC sector.

Investors should, however, remain mindful of sector-specific risks such as regulatory changes and credit cycles that could impact future earnings. The current fair valuation grade reflects a balanced view, recognising both the company’s strengths and the challenges ahead.

Get 2 full years of MojoOne Premium for only Rs. 12,999. Subscribe for 1 year and we'll add another year FREE. Offer valid for a limited time. Start Saving Now →