Will MUFG's 20% stake propel Shriram Finance to new all-time highs?

Mumbai: Shriram Finance extended its record-breaking run on the bourses as analysts raised their price targets on the stock by 16%-36% after the lender announced Japan's MUFG Bank will buy a 20% stake in the company. The stock rose 3.7% to close at an all-time high of ₹935.10 on Friday.

The new price targets, broadly in the range of ₹1,050 to ₹1,200, point to upsides of 12% to 28%

"MUFG's investment in Shriram Finance is positive for the NBFC in our view, as it is book accretive," said Vishal Narnolia, assistant vice president of research at ICICI Securities. The brokerage increased its 12-month price target on the stock from ₹880 to ₹1,200.


Shriram shares have risen 52% since October 1 on expectations of the deal.

Shrikant Chouhan, head of equity research, Kotak Securities said a global firm joining team with Shriram Finance would instill more confidence into Shriram's ability to repay debt, thus reducing its cost of funds.

"It will now have flexibility to diversify into other products, categories and geographies, away from the current majority lending to the commercial vehicles segment," he said, though in the short-term the transaction could weigh on the company's return on equity (ROE)-a key financial ratio

Nomura said it sees a 'big upswing' in Shriram Finance's growth outlook.

"With the large capital infusion, the diversification plan could accelerate," said the brokerage. "A premier Japanese bank can bring expertise in various aspects of SHFL's operations and business model; therefore, we see this as a big positive."