Shriram Finance Shares Drop 5% Following Q2 Results and Target Price Cuts

Shares of Shriram Finance Ltd experienced a sharp decline on Monday, trading down 5.03 per cent at ₹821.50 around midday. The stock touched an intraday low of ₹810.20 following the release of the company's second-quarter financial results on Friday.

Trading activity was high, with over 76.73 lakh shares changing hands by late morning. Sell orders slightly outpaced buy orders at 51.3 per cent compared to 48.7 per cent. With this latest decline, the stock is now nearly 29 per cent lower than its 52-week high of ₹1,153.70, which was recorded in August.

Despite reporting robust financial metrics, four major brokerages maintained their buy ratings but reduced their target prices, pointing to a deteriorating asset quality outlook. JPMorgan lowered its target to ₹1,095 from ₹1,215, highlighting that provisions surged by 28 per cent quarter-on-quarter. This pushed credit costs to 235 basis points, marking a 44 basis point sequential increase.

According to JPMorgan, management has guided for elevated credit costs for at least another one to two quarters, indicating that the company will likely miss its 2 per cent credit cost guidance for FY27. Other financial institutions also adjusted their expectations. Citi reduced its target price to ₹1,100 from ₹1,200, and HSBC lowered its target to ₹1,000 from ₹1,140. Meanwhile, Motilal Oswal retained its target at ₹1,155.

Company management addressed the stress by attributing it to agri-sector strain resulting from deficient rainfall in select geographies, alongside typical second-quarter seasonality. Management characterized the deterioration as limited and not broad-based. However, in response to weak monsoons and uncertainties stemming from the West Asia conflict, the company trimmed its FY27 Assets Under Management (AUM) growth guidance to 15–17 per cent, down from the previous 18 per cent.

On the positive side, Shriram Finance reported strong headline numbers for the quarter. Net interest income grew 38.2 per cent year-on-year to ₹8,661 crore. Net interest margins expanded to 9.52 per cent from 9.04 per cent in the previous quarter. Profit after tax rose 59.4 per cent to ₹3,677 crore, while AUM grew 17 per cent year-on-year to reach ₹3.29 trillion.

"The market reaction to Shriram Finance's second-quarter results highlights a classic tension between strong headline growth and underlying asset quality risks. Even when a company posts significant profit growth and net interest margin expansion, investors and analysts closely monitor rising provisions and credit costs. Management's decision to revise growth guidance downwards reflects a prudent approach in the face of sectoral headwinds and macroeconomic uncertainties." — Dr. Shishir Gupta, Founder & CEO, StartupLanes