Shriram Finance Outlook Turns Positive on MUFG Stake Deal
Overview
Moody's Ratings revised Shriram Finance Limited's outlook to positive from stable, affirming its Ba1 rating. The upgrade follows MUFG Bank's planned acquisition of a 20% stake for ₹4.4 billion, signaling expected improvements in capital, funding diversity, and risk management practices.
### Strategic Investment Boosts Confidence
Moody's Ratings has elevated Shriram Finance Limited's (SFL) outlook to positive, while maintaining its Ba1 corporate family rating. This significant revision stems from the announcement that MUFG Bank intends to acquire a 20% stake in SFL through a ₹4.4 billion preferential allotment.
The transaction, pending regulatory approvals, is slated for completion in 2026. Moody's views the investment by MUFG Bank as a strategic move that will fortify SFL's capital base, enhance access to global funding channels, and improve its funding diversification and risk management capabilities.
### Moody's Expects Financial Fortification
The positive outlook reflects Moody's expectation that SFL's business and financial profile will strengthen considerably. This anticipated improvement is driven by the support of a strong strategic shareholder and a substantial capital injection.
Moody's anticipates a material improvement in the company's capitalization post-transaction. This is projected to lead to a gradual rise in profitability as funding costs decrease, while maintaining robust access to both domestic and international funding markets.
### Profitability and Asset Quality Outlook
The rating agency highlighted that SFL's capital infusion is set to significantly boost its tangible common equity relative to tangible managed assets. By March 2025, this ratio is expected to position SFL among the highest capitalized non-bank finance companies in India. Furthermore, SFL's capital to risk-weighted assets ratio is projected to remain above 20% for the next four to five years.
Profitability is also forecast to strengthen over the next 12 to 18 months. This is attributed to lower funding costs, the gradual impact of central bank rate cuts, and improvements in operating leverage and funding access. SFL's debt maturity coverage ratio is expected to rise substantially, moving above 90% from 31% as of March 2025. The company plans to reduce its reliance on short-term debt and utilize the new funds for loan origination.
Asset quality is anticipated to remain stable over the coming 12 to 18 months. This stability is underpinned by robust lending and collection processes, a supportive macroeconomic environment, and a high proportion of collateralized loans.
