ICICI Securities Retail Equity Research has issued a BUY recommendation on Shriram Finance (SHRTRA), with a compelling target price of Rs 1,200 over a 12-month horizon, implying substantial upside from the current market price around Rs 925. This directive stems from a transformative preferential allotment to Japan's MUFG Bank, infusing Rs 39,618 crore for a 20% fully diluted stake, poised to catalyze book accretion, earnings enhancement, and prospective credit rating elevations. The transaction, accretive to both book value and profitability, underscores resilient core operations, margin expansion via cost-of-funds compression, and sustained asset quality amid a burgeoning SME lending focus, projecting robust NII growth at 17% CAGR through FY28E and RoA ascension to 3.5%

MUFG's Strategic Ingress Reshapes Ownership Dynamics

Shriram Finance's board has greenlit a monumental preferential issuance of 47.1 crore equity shares at Rs 840.93 apiece to MUFG Bank, crystallizing a 20% fully diluted ownership. Post-transaction, MUFG and the promoter group will parity at 20% stakes each, subject to shareholder ratification and regulatory clearances from RBI and CCI. This deal embeds a $200 million non-compete covenant, fortifying Shriram's competitive moat while MUFG secures board nomination rights for up to two non-independent directors. Lock-in strictures mandate 12 months for MUFG's third-party transfers (affiliate exceptions apply), 24 months on secondary market buys, and reciprocal curbs on rival NBFC stakes exceeding 20% if MUFG retains 10% in Shriram. Promoters face three-year lock-ins, truncated to one year for Sanlam entities.

Pan-India Footprint Anchors Rural Credit Dominance

As India's preeminent financier with deep rural penetration, Shriram Finance proffers bespoke credit solutions spanning commercial vehicles, two-wheelers, passenger cars, housing, gold loans, and small enterprise financing. Boasting 3,225 branches, 78,833 employees, and a 9.66 million customer bastion as of September 30, 2025, the institution exemplifies operational scale. MUFG's ingress heralds strategic parentage, potentially expediting a Crisil AA/Stable rating upgrade, thereby attenuating borrowing costs over the medium term. This confluence of global heft and grassroots agility positions Shriram for calibrated expansion in underserved segments.

Financial Trajectory Signals Sustained Momentum

ICICI Securities prognosticates NII escalation from Rs 21,853 crore in FY25 to Rs 35,302 crore by FY28E, registering a 17% three-year CAGR, propelled by 15-16% AUM accretion centered on SME disbursals. Pre-provisioning profits (PPP) are slated to burgeon at 21% CAGR to Rs 29,046 crore, with PAT climbing 18% to Rs 15,881 crore despite transient FY26E dip from one-offs. RoA trajectory ascends to 3.5% by FY28E, buttressed by margin tailwinds and pristine asset quality metrics—gross Stage 3 at 4.5-5.0%, net at 2.5-2.6%. Valuation at 2.2x FY28E ABV yields the Rs 1,200 target, affirming BUY.

Valuation Matrix and Investor Targets

At CMP Rs 925, Shriram trades at 18x FY26E EPS (Rs 49.8) and 3.1x P/ABV, compressing to 13.7x and 1.8x by FY28E, evincing value accretion. Equity shares expand to 235.1 crore post-issue, with BVPS surging to Rs 545.5. For conservative investors, accumulate at supports: Rs 850-870 (20-day SMA confluence), Rs 800 (50-day EMA), with stop-loss Rs 780; targets Rs 1,050 (short-term), Rs 1,200 (12M). Aggressive traders eye breakouts above Rs 960 for Rs 1,100 interim, leveraging 8.3-8.7% NII/AUM yields. RoE moderates to 12.4% FY28E amid equity dilution, yet outperforms peers.

Shareholding Stability Amid FII Sway

Promoters hold steady at 25.4%, FIIs command 53.6% (Sep-25), DIIs 15.3%, others 5.7%. This fortifies governance post-MUFG infusion. Balance sheet expands to Rs 4,54,319 crore by FY28E, with advances at Rs 3,82,935 crore (15.4% CAGR). Cost/AUM dips to 2.5%, underscoring efficiency gains.

Key Risks Tempering the Narrative

Notwithstanding tailwinds, headwinds loom: credit off-take deceleration could vitiate growth multiples; margin volatility from funding mix perturbations persists. Regulatory flux or execution delays in MUFG integration pose ancillary threats. Investors must vigilantly monitor disbursement momentum and NIM trajectory. This BUY thesis, however, pivots on Shriram's provenance in mass-market financing, now turbocharged by Japanese capital.