Shriram Finance: Solid business, value unlocked. What’s next?

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Subscribe to enjoy similar stories. Shriram Finance has seen stellar growth, with its stock up 2.6x since April 2023, translating to a remarkable 91% CAGR. Zoom out further, and the numbers remain solid: 3.9x since October 2014, clocking a 14.7% CAGR.

However, not all is rosy. Between February 2014 and February 2023, the stock delivered 0% returns—no growth for nine long years. This is a textbook case of how equity returns can be unevenly distributed over time.

Here’s a deeper dive into the story behind these numbers. Shriram Finance traces its origins to the 1970s, beginning as a chit fund business. Chit funds, structured as rotating savings and credit schemes, pool contributions from around 20 members, distributing the funds through a lottery or auction system.

Founded in 1974, Shriram Chit Funds institutionalized this concept, offering small businesses a reliable way to access credit and savings. Read this | Up 900% in three years, will Diwali hoist this jewellery stock to new heights? This exposure gave the company a deep understanding of the financial needs of the unbanked, revealing a significant market gap: small truck operators lacked access to formal credit. Recognizing the opportunity, Shriram expanded into financing commercial vehicles, focusing heavily on the pre-owned segment.

Targeting truck operators with irregular cash flows, the company structured loans with flexible repayment options. Shriram’s deep network from its chit fund operations helped it manage non-performing assets (NPAs), even while lending at 14-18% interest rates, reflecting the higher risk profile of customers. By FY22, Shriram Finance had become a leader in the pre-owned commercial vehicle (CV) market, with ₹1.27 trillion worth of assets