Shriram Finance Q1 Review: Macquarie, HSBC See NIMs Pressure — Should You Buy, Sell Or Hold?
The company reported a net profit of Rs 2,155.73 crore, up 8.8% year-on-year, and total income rose 20.1% to Rs 11,541.76 crore.
Shriram Finance’s Q1 FY26 performance has prompted a cautious yet optimistic response from brokerages, with both Macquarie and HSBC flagging continued pressure on net interest margins (NIM) as a key concern. While loan growth remains robust and credit costs are under control, the company’s profitability is being weighed down by excess liquidity and a softer yield environment.
The company reported a net profit of Rs 2,155.73 crore, up 8.8% year-on-year, and total income rose 20.1% to Rs 11,541.76 crore. However, NIM declined 14 basis points sequentially to 8.1%, continuing a downward trend for the third straight quarter. Both brokerages flagged this as a key risk to profitability going forward.
Shriram Finance Result Highlights (Standalone, YoY)
Total income up 20.1% to Rs 11,541.76 crore versus Rs 9,609.71 crore.
Net Profit up 8.8% to Rs 2,155.73 crore versus Rs 1,980.59 crore.
Net interest income rises 10% to Rs 5772.46 crore versus Rs 5233.9 crore.
Gross NPA ratio at 4.53% versus 4.55%, down 2 basis points quarter-on-quarter.
Net NPA ratio at 2.57% versus 2.64%, down 7 basis points quarter-on-quarter.
Macquarie On Shriram Finance
Macquarie maintained its Outperform rating but expressed concern over the persistent margin compression.
“Net Interest Margin declined by 14 basis points quarter-on-quarter to 8.1%, following sequential declines of 23 bps in Q4 FY25 and 26 bps in Q3 FY25,” Macquarie noted. “This was driven by higher liquidity on the balance sheet and a decline in yields due to new vehicle disbursements.”
“Liquidity drag leads to lower NIM, implying downside risks to ROA,” it said. “Management’s guidance of 8.5% NIM for FY26 looks challenging and implies downside risk to our NIM and ROA estimates.”
On asset quality, Macquarie acknowledged a decline in credit costs to 1.9% from 2.4% in Q4FY25, despite a rise in Stage-2 loans.
“Stage-2 increased 40 bps QoQ to 7.3%, broad-based across vehicle categories. However, write-offs declined sharply, helping credit costs.”
Macquarie remains watchful of forward flows and stressed pockets in the unsecured SME book, particularly in southern states.
HSBC On Shriram Finance
HSBC retained its Buy rating but revised its target price downward to Rs 730 from Rs 770, citing margin pressure and slower growth.
“We estimate a 30–35 basis points NIM drag due to excess liquidity,” HSBC wrote. “If SHFL deploys this over the next three quarters, there would be upside risk to our NIM and NII estimates.”
Despite the rise in Stage-2 loans for two consecutive quarters, HSBC noted that Stage-3 accretion remained limited.
“Management reaffirmed that it is not restructuring any loans and attributed the increase to regular business trends. It is confident of consistent recoveries.”
HSBC expects profitability to remain healthy if asset quality holds up.
"Return on Assets (ROA) is expected to trend between 2.9% and 3.1%, while Return on Equity (ROE) is projected to range from 15% to 16% during the financial years FY26 to FY28."
Despite a slight cut in earnings estimates, HSBC forecasts a compound annual growth rate (CAGR) of 16% in earnings per share (EPS) from FY25 to FY28.
The brokerage also highlighted growth opportunities in commercial vehicles, construction equipment, gold loans, and rural car financing.
