Shriram Finance’s MUFG Deal Seen Improving Capital, Funding Profile Say Brokerages — Check Outlook

Brokerages have largely welcomed MUFG Bank’s Rs 39,620 crore investment in Shriram Finance, calling it a strong capital-positive development that enhances balance-sheet strength, improves funding costs and creates room for long-term growth diversification.

InCred highlighted the sharp improvement in capital metrics following the deal. It expects the transaction to lift Tier 1 capital adequacy by about 13 percentage points to nearly 33%, based on the the September quarter balance sheet.

The stronger capital position is also seen translating into better profitability, with InCred projecting an incremental 30-40 basis point rise in return on assets during FY27-FY28.

Equirus Securities termed the transaction a positive development, noting that the equity infusion — along with the credibility of a global investor like MUFG — should help bring down the company’s cost of funds. This, in turn, could enable Shriram Finance to target a relatively better customer profile on the asset side. Equirus also flagged potential credit rating improvement as a key monitorable following the infusion.

PL Capital emphasised the scale and strategic nature of the investment. The brokerage expects the equity infusion to significantly strengthen capital adequacy, which could pave the way for a rating upgrade. While PL Capital expects RoE to moderate to about 12% in FY28, it sees RoA remaining steady at 3.1%.

Overall, brokerages view the deal as a strong endorsement of Shriram Finance’s franchise, materially improving capital resilience, lowering funding costs and providing long-term growth capital to support expansion across lending segments.

As part of the deal, Japan's MUFG will subscribe to 47.1 crore shares at Rs 840.93 per share, which is a 5% discount to the current market price (CMP) of Rs 898. After the stake acquisition by Japan's MUFG Bank, Shriram Finance's promoter stake will come down to 20.3% from 25.4%.

Additionally, the existing public shareholder stake will dilute to 59.7% from 74.6% after the deal. Post the fund infusion, the book value increases to Rs 425.2 per share from Rs 321 per share, which is a growth of 32%. At a floor price of Rs 841, this translated to a price-to-book value of 2.1x.

The investment will be made through a preferential issuance of equity shares. MUFG will pay a one-time, non-recurring, non-compete and non-solicit fee of $200 million to Shriram Ownership Trust. MUFG also will have the right to appoint two nominee directors on the board of Shriram Finance.