Buy Shriram Finance Ltd For Target Rs.1,060 by Prabhudas Liladhar Capital Ltd
MUFG buys 20% stake in SHFL
Japanese lender MUFG Bank is investing Rs 396.2 bn in Shriram Finance through preference shares, at a post-money valuation of 1.8x P/B. The transaction will significantly strengthen Shriram Finance’s capital base, improve its balance sheet resilience and provide long-term growth capital to support expansion across lending segments. We expect CRAR to see a boost of ~15% with the equity infusion (Exhibit 1) with SHFL on track for a rating upgrade. While RoE is likely to be subdued at ~12% in FY28E, RoA remains intact at 3.1%. We keep our multiple unchanged at 2.2x Sep-27 P/ABV and maintain BUY with a revised TP of Rs 1,060.
* Event: MUFG Bank is investing Rs 396.2 bn (~USD 4.4 bn) in Shriram Finance (SHFL) through preferential shares. This investment will result in MUFG Bank acquiring a 20% stake in SHFL on a fully diluted basis. As part of the transaction, MUFG has the right to nominate upto 2 non-independent directors to the board and pre-emptive rights to maintain its shareholding. These special rights will lapse if MUFG’s stake falls below 10% and will be subject to shareholder approval. The proposed minority investment by MUFG Bank is subject to shareholder approval, regulatory clearances and customary closing conditions.
* About the lender: MUFG Bank, Ltd. is Japan’s premier bank, with a global network spanning around 50 countries. MUFG Bank’s parent is Mitsubishi UFJ Financial Group, Inc. with a legacy of over 130 years in India..
* Our view: We believe the deal reinforces confidence in SHFL by strengthening its balance sheet and providing access to long-term growth capital. We expect an increase of ~15% in CRAR ratio to ~36% post equity infusion (vs. 21% as of Sep-25).
* While the collaboration marks renewed large-investor interest in the Shriram group following the exit of Piramal in 2023, we believe the positives have already been captured in the valuation (Stock is +11.5% over the past month). With this deal, we believe SHFL is on track for a rating upgrade (currently AA+). We adjust our net-worth for the transaction and keep our multiple of 2.2x Sep-27 P/ABV unchanged. Maintain BUY with a TP of Rs 1,060.
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