Shriram Finance shares tumble nearly 7% to 11-month low: What's weighing on the stock?

Motilal Oswal Financial Services (MOFSL) said Shriram Finance's profit after tax (PAT) rose around 60 per cent year-on-year (YoY) to Rs 3,680 crore in the September quarter, in line with its estimates. Net interest income (NII) grew around 40 per cent YoY to Rs 8,410 crore, also in line with expectations.

Other income increased around 15 per cent YoY to Rs 420 crore, around 8 per cent below MOFSL's estimates. Operating expenses rose around 4 per cent YoY to Rs 2,020 crore, approximately 9 per cent below the brokerage's estimates.

The cost-to-income ratio declined around 290 basis points (bps) sequentially to 22.9 per cent in Q2 FY27, compared with 25.9 per cent in the preceding quarter and 30.5 per cent a year earlier.

MOFSL noted that Shriram Finance expects its cost-to-income ratio to remain around 25 per cent and operating expenses as a proportion of AUM at around 2.5 per cent over the medium to long term.

The brokerage retained its 'Buy' rating on the stock but lowered its target price to Rs 1,155 from its earlier estimate. It revised its FY27 and FY28 earnings per share estimates to account for higher credit costs, partly offset by higher net interest margins (NIMs) and lower operating expenses.

MOFSL expects Shriram Finance to deliver a compound annual growth rate (CAGR) of around 18 per cent in AUM and 31 per cent in PAT over FY26-FY28. It projects a return on assets (RoA) of around 4.1 per cent and return on equity (RoE) of 13.7 per cent by FY28.

Nuvama Institutional Equities said the company's strong growth and margin momentum could help it absorb elevated provisions while sustaining an RoA (Return on Assets) of more than 4 per cent and an RoE (Return on Equity) of 13-15 per cent over FY27-FY29.

However, the brokerage flagged rising asset-quality risks and a sector-wide valuation de-rating. It lowered its target price to Rs 1,150 from Rs 1,250 while retaining its 'Buy' rating.

Nuvama also highlighted Shriram Finance's revised AUM growth guidance of 15-17 per cent, down from 18 per cent earlier. The revision reflects a cautious approach amid weak monsoon conditions and geopolitical uncertainties, according to the brokerage.

Equirus Securities also maintained its 'Long' rating on the stock while revising its target price to Rs 1,150 from Rs 1,250 earlier. The brokerage changed its target horizon from March 2027 to September 2027.