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Healthy growth but cautious stance amid uncertainties

Q4FY26 AUM grew 14.8% YoY to INR 3,022.7bn, led by strong growth in the CV, PV and Gold portfolios. Company has seen pick-up in new vehicle financing; however, management remains watchful on growth due to ongoing West-Asia conflict/ fuel price hike uncertainty. We build in a CAGR of ~17% in AUM over FY26-28E led by higher volumes in VF and continued ramp-up in the non-VF portfolio. NIM came at 8.6% supported by a reduction in CoF; we expect NIM to improve by ~20bps in FY27E. Headline asset quality saw a slight deterioration due to higher stress in MSME; however company maintains adequate provision cover (~6% of total loan book). We build a credit cost of 2.0%/ 1.9% in FY27/FY28E as SHFL expands to new CV. We slightly tweak our FY27/ FY28E estimates on cautious growth outlook. Maintain ‘BUY’ with an unchanged multiple of 2.3x on Mar’28 ABV and a TP of INR 1,200.

Expect 17% AUM growth in FY27E:

4QFY26 disbursements grew 14.9% YoY to INR 509.5bn. AUM grew at a healthy 14.8% YoY/ 3.6% QoQ to INR 3,022.7bn, led by the CV, PV and Gold segments (+19.5%, 19.0%, and 36.9% YoY, respectively) supported by GSTled tailwinds. Construction Equipment saw a de-growth (-25.6% YoY) due to low statelevel/ local spending and cash-flow challenges. The split among CV/PV/CE/Farm Equipment/MSME/2W/Gold/Personal Loans stood at 46.9%/ 21.3%/ 4.4%/ 2.3%/ 13.6%/ 5.8%/ 2.2%/ 3.6%. Commentary highlighted a possible delay in monsoon which could weigh on growth in the tractor segment; however, used tractor volumes are expected to remain resilient. While new vehicle financing is witnessing strong growth (+15% YoY), company expects to deliver steady growth in used vehicle through deeper market penetration. The company expects AUM growth of ~18% in FY27 aided by growth in PV, MSME, and gold loans. We build an AUM CAGR of ~17% over FY26-28E driven by higher new vehicle volumes, replacement demand aiding growth in used vehicles and a strong ramp-up in the non-VF portfolio.

NIM to improve by ~20bps in FY27E:

NII grew 21.3% YoY (2.7% QoQ) to INR 67.5bn. Reported NIM was largely flat QoQ at 8.6%. The company has received credit rating upgrades from multiple agencies, resulting in a reduction in CoF (incremental CoF at 7.2% in Q4). We build a ~50bps improvement in average CoF as ~45% of SHFL’s borrowings are likely to reprice and expect NIM (calc.) to improve by ~20bps to 9.8% by FY27E. Cost/Income ratio improved to 25.3% (vs. 29.7% in Q3) due to

(1) lower branding/ advertising cost

(2) change in accounting method for recording DSA charges on 2W portfolio (~INR 500mn)

(3) controlled employee cost. We expect opex to remain elevated (~27%) over the near term, in-line with guidance as the company invests in the franchise. Capital adequacy post MUFG Bank infusion stands at ~34% with a liquidity buffer of INR 130bn, adequate to cover 2 months of liabilities.

Asset quality trend resilient; outlook remains watchful:

Headline asset quality ratio has seen a slight decline in Q4FY26 with GS3/NS3 at 4.58%/ 2.33% vs. 4.54%/ 2.38% QoQ. Stage 2 stood at 6.9% vs. 6.8% QoQ, led by a 15- 39bps deterioration across segments. Commentary indicated that stress in the MSME segment is well controlled with most loans being mortgage-backed. Stage 3 PCR improved to 50.3% (vs. 48.8% in Q3FY26) with the company maintaining provisions at ~6% of the total loan book, providing adequate buffer against macro-level uncertainties. Commentary highlighted no significant stress in Q4 due to geopolitical tensions/ fuel prices hike uncertainty, however credit cost continues to be a key monitorable. With a shift toward new CV customers and prudent growth strategy, we expect credit cost to be improve to 2.0%/ 1.9% in FY27/ FY28E.

Expect RoA to improve to 3.3%:

SHFL expects RoA to improve over the next 5 years (vs. 3.1% reported in FY26) driven by

(i) significant improvement in CoF

(ii) ~10bps improvement in credit cost. While the leverage ratio has reduced post the MUFG infusion (to 2.4x vs. 3.8x currently), it will gradually improve as SHFL consumes capital, with RoE normalizing to 15%-16% levels by FY31E. We expect RoA to improve to 3.3% by FY28E.

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