Credit rating agencies Crisil Ratings, ICRA and India Ratings & Research have upgraded the long-term credit rating for Shriram Finance Ltd (SFL) to 'AAA with a Stable outlook' from the earlier 'AA+'. According to reports from The Hindu BusinessLine, the rating action considers the significantly strengthened capital profile of SFL with networth crossing ₹1 lakh crore post the MUFG transaction. The rating agencies also resolved the ratings from 'Watch with Positive Implications' following the strategic investment. As per The Newsroom, ICRA removed SFL from its 'Rating Watch with Positive Implications' status, while CRISIL raised the company's long-term credit rating to the highest 'AAA/Stable' grade.
MUFG Bank recently acquired a 20 per cent equity stake via preferential issue of equity shares in SFL on a fully diluted basis, with a total investment of ₹39,618 crore. As reported by The Hindu BusinessLine, this strategic investment has resulted in the substantial capital strengthening that led to the rating upgrade. The partnership provides SFL with access to funds at lower cost and enables the company to leverage MUFG Bank's experience across various facets including technology and compliance. According to The Newsroom, this infusion is projected to boost the company's net worth above ₹1 lakh crore and reduce its leverage to below 2.5 times, providing a substantial buffer against credit cycles and enhancing the company's ability to fund growth at a lower cost.
According to The Hindu BusinessLine, SFL reported overall assets under management (AUM) of ₹2,91,709 crore as on December 31, 2025, with net profit after tax of ₹7,003 crore and return on managed assets (RoMA) of 3.0 per cent (annualised) during the first nine months of fiscal 2026. The company's networth crossed ₹1 lakh crore post the transaction, which was ₹62,093 crore as on December 31, 2025. The leverage ratio has been reduced to 2.5 times from the previous 4.1 times. As reported by The Newsroom, SFL delivered a 72.40% return in 2025 and posted 18% revenue growth to ₹11,912 crore in Q2 FY26, with AUM increasing 15.74%. However, the company's Free Cash Flow Margin is a negative -70.4%, highlighting the high capital requirements inherent in a lending business.
The stock now trades at a Price-to-Book ratio of 3.14x, a level that is close to its 5-year highs and significantly above the industry median of 1.05x. As reported by The Newsroom, this premium suggests the market is paying a substantial mark-up for each rupee of book value, indicating the stock may be fully valued or overvalued on a traditional balance-sheet basis. The association with MUFG Bank should benefit SFL's liability franchise through access to funds at lower cost, with the company's incremental cost of borrowings already seeing some benefit post the transaction announcement. Umesh Revankar, Executive Vice Chairman, SFL, stated that the MUFG partnership has been a pivotal moment, with these rating upgrades reflecting the partnership's benefits.
While the improving asset quality is a clear positive sign with gross stage 3 assets declining to 4.50% as of December 2025, compared to 4.60% the prior year and 5.50% two years ago, the central risk lies in the capital-intensive nature of the business. As reported by The Newsroom, the controlled credit cost of 1.40% of average managed assets in the first nine months of FY26 demonstrates disciplined underwriting, but scaling the portfolio introduces new credit risks. The company commands a leading position in pre-owned commercial vehicle financing with an extensive branch network of 3,225 branches strategically located in rural and semi-urban areas. Morgan Stanley's Overweight rating hinges on maintaining the controlled credit costs amid capital-intensive growth, with the primary catalyst being the company's execution on maintaining pristine credit standards while growing the enhanced capital base.
