Shriram Finance shares will be in focus on Thursday, January 8, as the company prepares for a crucial Extraordinary General Meeting (EGM) scheduled for January 14. The meeting will seek shareholder approval for a significant ₹39,618.00 crore capital infusion from Japan's MUFG Bank, marking one of the largest cross-border investments in India's financial services sector.

Deal Structure and Voting Requirements

The proposed transaction involves a 20% stake dilution through preferential share allotment to MUFG Bank. Shareholders will vote on three key resolutions during the EGM, with different voting thresholds required for approval.

Proxy Advisory Recommendations

Three proxy advisory firms have unanimously recommended shareholders vote in favor of all proposed resolutions. Institutional Shareholder Services (ISS) found no concerns with the non-compete fee structure, clarifying that MUFG Bank will make the payment directly to Shriram Ownership Trust (SOT), the promoter entity, only upon successful completion of the share allotment.

ISS emphasized that the fee relates to a genuine restriction preventing promoters from entering competing businesses. Since MUFG Bank pays the fee directly rather than Shriram Finance, it mitigates the risk of value leakage for the company.

Investment Rationale and Safeguards

Another advisory firm, InGovern, urged shareholders to support the proposal, citing several positive factors:

• Fair pricing structure for the investment
• Strong credentials of MUFG Bank as an investor
• Adequate safeguards for Shriram Finance's core business operations and brand protection
• Proportionate non-compete fee relative to the investment size
• Clearly defined scope and sunset clauses in the agreement

Current Shareholding Pattern

As of end-September, the company's shareholding structure demonstrates diverse ownership across different investor categories:

Given the specific voting thresholds required for the special resolutions, investor participation in the upcoming EGM will be critical for the deal's success. The 75% approval requirement for the main resolutions means substantial institutional investor support will be necessary to complete the transaction.

Shriram Finance shares reached a historic milestone, crossing the ₹1,000 mark for the first time and hitting a record high of ₹1,009. The stock gained 1.30% during the session, extending its winning streak to three consecutive sessions with a cumulative rise of nearly 6% over this period. The remarkable performance saw the stock surge 72% in the previous year, making it one of the standout performers in the financial sector.

MUFG Investment Drives Market Confidence

The primary catalyst behind Shriram Finance's exceptional performance has been Japan-based MUFG's agreement to acquire a 20% stake in the company for $4.4 billion. This transaction represents MUFG's largest investment in India, significantly surpassing its previous cumulative investments of $1.7 billion in the country. The deal marks a major vote of confidence from one of Japan's leading financial institutions in India's lending sector.

CARE Ratings Upgrades Credit Rating to AAA

CARE Ratings has upgraded Shriram Finance's credit rating on non-convertible debentures and subordinate debt to "CARE AAA; Stable" from "CARE AA+; Stable." The rating agency has also assigned a new "CARE AAA; Stable" rating to the company's Fixed Deposit Programme and reaffirmed the highest short-term rating of "CARE A1+" on the commercial paper programme.

Strong Financial Performance and Capital Position

The rating upgrade reflects Shriram Finance's sustained leadership position in the used commercial vehicle financing segment and successful diversification across products and geographies. The company's assets under management grew to ₹2,81,309 crore as of September 30, compared to ₹2,63,190 crore as of March 31. The merger with Shriram City Union Finance has provided synergies in the form of adequate yield-on-advances, reduction in cost of funds, and improvement in asset quality.

Analyst Upgrades and Price Targets

Leading brokerages have responded positively to recent developments, raising their target prices and maintaining bullish ratings. Nomura has increased its target price to ₹1,140, implying an upside of 14.40% from current levels. Citi has maintained its Buy rating while raising the target price to ₹1,100 from ₹870, backed by earnings upgrades of over 10%.