Shriram Finance Receives Dual AAA Upgrades; Morgan Stanley Sets ₹1,325 Target

Shriram Finance Limited has received significant credit rating upgrades from two major rating agencies, with ICRA Limited elevating its long-term rating to [ICRA]AAA; Stable and CRISIL Ratings Limited upgrading to 'Crisil AAA/Stable'. Both agencies have removed their Watch with Positive Implications status following the company's strategic equity infusion from MUFG Bank Ltd. Additionally, Morgan Stanley has maintained its Overweight rating with a target price of ₹1,325.00, citing the AAA upgrade and improving credit profile as key factors supporting the company as a top pick among NBFCs.

Morgan Stanley Analyst Coverage

Morgan Stanley maintains its Overweight rating on Shriram Finance with a target price of ₹1,325.00, highlighting several key factors:

Rating Parameter: Details Rating: Overweight (Maintained) Target Price: ₹1,325.00 Key Catalyst: AAA upgrade by ICRA post MUFG deal Investment Thesis: Improving credit profile and narrowing funding cost advantage

The brokerage firm emphasizes that the AAA rating upgrade post the MUFG deal significantly improves the company's credit profile. Morgan Stanley expects the narrowing funding cost advantage to support Return on Assets (ROA) improvement, making Shriram Finance a preferred choice among Non-Banking Financial Companies.

ICRA Rating Upgrade Details

ICRA Limited has upgraded Shriram Finance's comprehensive rating across multiple instruments:

Instrument: Prior Rating Upgraded Rating Fixed Deposit Programme: [ICRA]AA+; Watch with Positive Implications [ICRA]AAA; Stable Non-Convertible Debenture Programme: [ICRA]AA+; Watch with Positive Implications [ICRA]AAA; Stable

The total rated amount has increased substantially from ₹975.00 crore to ₹2,975.00 crore, reflecting the company's expanded funding requirements and improved credit profile.

CRISIL Rating Action

CRISIL Ratings Limited has upgraded multiple facilities and instruments:

Facility/Instrument: Rating Action Bank Loan Facilities - Long-term: Crisil AAA/Stable (Upgraded from 'Crisil AA+') ₹80,000 Crore Fixed Deposits: Crisil AAA/Stable (Upgraded from 'Crisil AA+') Non-Convertible Debentures: Crisil AAA/Stable (Upgraded from 'Crisil AA+') Subordinated Debt: Crisil AAA/Stable (Upgraded from 'Crisil AA+') Commercial Paper: Crisil A1+ (Reaffirmed)

CRISIL has also withdrawn ratings on ₹1,190.00 crore Non-Convertible Debentures, ₹50.00 crore Long-Term Principal Protected Market Linked Debentures, and ₹40.00 crore Subordinated Debt upon redemption.

Strategic Equity Infusion Drives Upgrades

The rating upgrades follow Shriram Finance's board approval for the allotment of 47,11,21,055 fully paid-up equity shares through preferential issue to MUFG Bank Ltd for approximately ₹39,618.00 crore. This transaction results in MUFG holding a 20% stake in the company while management control remains with the Shriram Group.

Both rating agencies noted that this equity infusion has significantly bolstered Shriram Finance's capitalisation profile, providing substantial buffer for growth and managing asset quality volatility. The company's managed gearing is expected to decline to approximately 2.50 times on a pro forma basis.

Financial Performance and Market Position

Shriram Finance maintains its position as India's second largest NBFC by assets under management (AUM), with ₹2,91,709.00 crore as of December 31, 2025. The company demonstrates strong market leadership in preowned commercial vehicle financing with 74% of its AUM focused on vehicle financing.

Financial Metric (Standalone): 9M FY2026 FY2025 FY2024 Total Income (₹ crore): 35,650.00 41,859.00 34,998.00 Profit After Tax (₹ crore): 6,985.00 9,761.00 7,190.00 Return on Managed Assets: 2.90% 3.50% 3.10% Gross Stage 3 Assets: 4.50% 4.60% 5.50%

The company's asset quality has shown consistent improvement, with gross stage 3 assets declining to 4.50% as of December 2025. Credit costs remained controlled at 1.40% of average managed assets in 9M FY2026.

Shriram Finance has successfully completed its preferential share allotment to MUFG Bank Ltd., with the Board of Directors formally approving the transaction on April 8, 2026. The company's board meeting, which commenced at 10:00 A.M. and concluded at 10:30 A.M., confirmed the allotment of shares to the Japanese multinational banking group, marking a significant milestone in the strategic partnership.

Board Meeting Outcome

The Board of Directors approved the allotment of substantial equity shares to MUFG Bank through this preferential offering:

Parameter: Details Number of Shares Allotted: 47,11,21,055 Issue Price per Share: ₹840.93 Premium per Share: ₹838.93 Total Consideration: ₹3,96,17,98,28,781.15 Face Value per Share: ₹2.00 Allottee: MUFG Bank Ltd.

SEBI Regulatory Disclosure

MUFG Bank Ltd. has filed the mandatory disclosure under Regulation 29(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 with both BSE Limited and National Stock Exchange of India Limited. The disclosure was signed by Yasushi Itagaki, Member of the Board of Directors and Deputy President of MUFG Bank, confirming the acquisition details:

Acquisition Details: Pre-Acquisition Post-Acquisition MUFG Bank Shareholding: NIL 47,11,21,055 shares Voting Rights Percentage: 0% 20.02% Diluted Capital Percentage: 0% 20.00% Mode of Acquisition: - Preferential Allotment

Shareholding Impact

The preferential issue has significantly altered the company's shareholding structure and capital base:

Shareholding Details: Pre-Issue Post-Issue MUFG Bank Shares: Nil 47,11,21,055 MUFG Bank Stake: 0% 20.00% Total Paid-up Capital: ₹3,76,31,30,742 ₹4,70,53,72,852 Total Equity Shares: 188,15,65,371 235,26,86,426

Strategic Partnership Framework

The transaction is executed under the Investment Agreement dated December 19, 2025, between Shriram Finance and MUFG Bank Ltd. The allotted equity shares will rank pari-passu with existing equity shares of the company. MUFG Bank, incorporated under Japanese laws with its registered office at 1-4-5, Marunouchi, Chiyoda-ku, Tokyo, Japan, brings significant international banking expertise to this partnership.

Executive Leadership Statements

Umesh Revankar, Executive Vice Chairman of Shriram Finance, emphasized the strategic importance of this collaboration: "This marks the successful culmination of a landmark transaction and the beginning of a long-term strategic collaboration with MUFG. We believe this collaboration will open new avenues for innovation, enhance access to diversified and cost-effective funding, and support the adoption of global best practices in risk management and governance."

Junichi Hanzawa, President and Group CEO of MUFG, highlighted the investment's significance: "We are very pleased to commence our strategic collaboration with SFL. SFL is a leading financial institution in India with a strong business foundation and significant growth potential in the MSME and retail segments. This investment represents an important step that underscores MUFG's long-term commitment to the Indian market."

Regulatory Compliance

Shriram Finance has received in-principle approval from both the National Stock Exchange of India Limited and BSE Limited for the preferential issuance. The company will apply for listing and trading approval from the stock exchanges for the newly allotted equity shares. The shares allotted to MUFG Bank will be subject to lock-in provisions as specified under SEBI regulations for preferential issues. The regulatory filing was signed by U Balasundararao, Company Secretary & Chief Compliance Officer, confirming completion of all procedural requirements including approval from the Competition Commission of India.

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