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

Mumbai: Shriram Finance extended its record run on the stock markets as analysts raised their price targets for the stock by 16%-36% after the lender announced that Japan’s MUFG Bank would 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, roughly between ₹1,050 and ₹1,200, indicate increases of 12% to 28%

“MUFG’s investment in Shriram Finance, in our view, is positive for the NBFC as it delivers book growth,” said Vishal Narnolia, assistant vice-president, research at ICICI Securities. The brokerage raised the 12-month price target for the stock from ₹880 to ₹1,200.

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

Shrikant Chouhan, head of equity research at Kotak Securities, said a global company joining Shriram Finance would instill greater confidence in Shriram’s ability to repay debt, thereby reducing the cost of funds.

“It will now have the flexibility to diversify into other products, categories and geographies away from the current majority lending to the commercial vehicle segment,” he said, although the transaction could weigh on the company’s return on equity (ROE) – a key financial ratio – in the near term.

Nomura said it sees a “major upturn” in Shriram Finance’s growth prospects. “The large capital injection could accelerate the diversification plan,” the broker said. “A leading Japanese bank can bring expertise in various aspects of SHFL’s operations and business model; therefore, we see this as a major positive.”