Moody's upgrades Shriram Finance outlook to positive, affirms Ba1 rating
Moody's has upgraded Shriram Finance's outlook to positive from stable while affirming its Ba1 rating, following MUFG Bank's planned ₹4.4 billion investment for a 20% stake. The transaction, expected to close in 2026, is projected to strengthen the company's capital base, improve funding diversity, and enhance risk management. Moody's expects significant metric improvements including debt maturity coverage ratio rising above 90% from 31% and capital ratios remaining above 20% over the next four to five years.
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Moody's Ratings has revised Shriram Finance Limited's outlook from stable to positive while affirming its long-term corporate family rating at Ba1. The rating action follows the company's announcement of MUFG Bank's planned acquisition of a 20% stake through preferential allotment of shares.
Strategic Investment Details
The transaction involves MUFG Bank acquiring shares worth ₹4.4 billion (approximately $296 million) and is subject to regulatory approvals with an expected closure in 2026. Moody's highlighted that this investment will provide multiple strategic benefits to Shriram Finance.
| Investment Parameter: | Details |
|---|---|
| Stake Acquisition: | 20% |
| Investment Value: | ₹4.4 billion (~$296 million) |
| Transaction Method: | Preferential allotment |
| Expected Closure: | 2026 |
| Status: | Subject to regulatory approvals |
Expected Financial Improvements
Moody's expects the strategic partnership to materially strengthen Shriram Finance's business and financial profile. The rating agency projects significant improvements across multiple financial metrics following the capital infusion.
| Financial Metric: | Current/Expected Performance |
|---|---|
| Debt Maturity Coverage Ratio: | Rising above 90% from 31% (March 2025) |
| Capital to Risk-Weighted Assets: | Above 20% (next 4-5 years) |
| Tangible Common Equity Ratio: | Among highest for NBFCs in India |
Strategic Benefits and Outlook
The positive outlook reflects Moody's expectations of strengthened business fundamentals supported by the strategic shareholder and significant capital increase. The investment is expected to provide access to global funding channels, improve funding diversity, and enhance risk management practices.
Key anticipated benefits include:
- Stronger capital base and improved capitalisation
- Enhanced access to onshore and offshore funding
- Gradual rise in profitability as cost of funds declines
- Reduced reliance on short-term debt
- Utilisation of new funds for loan origination
Performance Projections
Moody's forecasts that Shriram Finance's profitability will strengthen over the next 12-18 months, driven by lower funding costs and gradual transmission of central bank rate cuts. The company's operating leverage and improved funding access are expected to support overall performance.
Asset quality is projected to remain stable over the next 12-18 months, underpinned by robust lending and collection processes, a stable macroeconomic environment, and a high proportion of collateralised loans. The rating agency noted that the capital infusion will position the company among non-bank finance companies with the highest tangible common equity to tangible managed assets ratio in India by March 2025.
Historical Stock Returns for Shriram Finance
| 1 Day | 5 Days | 1 Month | 6 Months | 1 Year | 5 Years |
|---|---|---|---|---|---|
| -1.76% | -4.34% | +16.92% | +45.81% | +68.24% | +276.40% |
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