Shriram Finance Limited — Q1 FY25 earnings call

Call held 26 Jul 2024

Management summary

Shriram Finance delivered a strong Q1 FY25 with 21% AUM growth and 18% PAT growth, outperforming expectations as elections did not disrupt business. Management maintained 15% AUM growth guidance but expects to exceed it. MSME expansion to 175 more branches over 2 years and gold loan to 500 more branches underway. Used vehicle prices remained strong with 10-12% YoY appreciation supporting asset quality.

Highlights

  • AUM grew 20.82% YoY to Rs 2,33,444 crores; 3.82% sequential growth

  • Disbursements at Rs 37,710 crores, up 23.82% YoY from Rs 30,455 crores

  • NII grew 20.63% YoY to Rs 5,354 crores; NIM at 8.79% vs 8.33% in Q1 FY24

  • PAT grew 18.21% YoY to Rs 1,981 crores; EPS at Rs 52.70 vs Rs 44.73

  • Gross Stage-3 improved to 5.39% from 6.03% YoY; Net Stage-3 at 2.71%

  • Credit cost at 1.87% vs 1.62% in Q1 FY24; cost-to-income improved to 27.45% from 28.85%

  • Shriram Housing Finance disinvestment to Warburg Pincus approved

  • Cost of debt marginally down from 9.01% to 8.96%; incremental cost at 8.8%

Key financials

  1. AUM ₹2.33L Cr +20.8%YoY
  2. Disbursements ₹37,710 Cr +23.8%YoY
  3. Net Interest Income ₹5,354 Cr +20.6%YoY
  4. Net Interest Margin 8.8%
  5. Profit After Tax ₹1,981 Cr +18.2%YoY
  6. EPS ₹52.7 +17.8%YoY
  7. Gross Stage-3 5.4%
  8. Net Stage-3 2.7%
  9. Credit Cost 1.9%
  10. Cost-to-Income Ratio 27.4%
  11. Total Debt ₹1.92L Cr
  12. Cost of Debt 9%
  13. Employee Count 75,813

What they filed

Q1 FY27: revenue up 16.2%, net profit up 59.9% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue10,090 10,698 11,454 11,536 11,912 +18%12,171 +14%12,513 +9%13,400 +16%
Net profit2,153 3,249 2,144 2,159 2,314 +7%2,530 −22%3,021 +41%3,453 +60%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of Disbursements
Commercial Vehicles ₹14,024 Cr 37.2%
Passenger Vehicles ₹7,406 Cr 19.6%
MSME ₹6,207 Cr 16.5%
Two Wheelers ₹2,732 Cr 7.2%
Gold Loans ₹2,652 Cr 7.0%
Personal Loans ₹2,014 Cr 5.3%
Construction Equipment ₹1,850 Cr 4.9%
Farm Equipment ₹820 Cr 2.2%

Guidance & targets

Growth

  • AUM Growth Growth · FY25 · High confidence 15% (expect to exceed)
    Our guidance will remain at 15... we can expect to do much better than the guidance.

    — Umesh Revankar

  • CV Portfolio Growth Growth · FY25 · Medium confidence ~12%
    The old truck business, we are expecting it to grow around 12%.

    — Y.S. Chakravarti

  • MSME Growth Growth · FY25 · High confidence 20%+
    MSME we are looking at growing the book by about 20% plus.

    — Y.S. Chakravarti

  • Two-Wheeler Growth Growth · FY25 · Medium confidence 15%-18%
    Two-wheeler about 15% to 18%.

    — Y.S. Chakravarti

Distribution

  • MSME Branch Addition Distribution · FY26-27 · High confidence 175 branches
    We will be adding the product in about 175 existing branches.

    — Y.S. Chakravarti

Risks & concerns

  • Gold loan AUM declining despite rising gold prices

    medium

    Gold loan AUM declining due to branch infrastructure revamp for strong rooms, INR 20,000 cash disbursement limit adjustment, and unchanged per-gram lending rates. Management expects recovery in Q2-Q3.

    Analyst acknowledged

  • Credit cost rising from 1.62% to 1.87% YoY despite Stage-3 improvement

    low

    Provisions increased from Rs 305 cr to Rs 588 cr YoY. Write-offs at Rs 599 cr. Management attributes to product mix changes affecting ECL model calculations.

    Analyst acknowledged

  • Farm equipment Stage-3 at elevated 9% level

    low

    Management says credit cost in tractors is ~2% similar to other products due to write-backs. Assets remain within village limits making recovery easier. High yield offsets higher provisioning.

    Analyst downplayed

Areas of evasion (2)

  • Personal loan and gold loan yields deferred to IR team
  • ECL overlay breakdown not disclosed

Q&A highlights

3 direct
Used Vehicle Price Trends and Impact on Collections Direct
Used vehicle prices have been reasonably strong year-on-year. The growth looks to be around double digit, around 10% to 12%. And we don't really see it is flattening.

Strong used vehicle prices are a key pillar of Shriram's asset quality. Any reversal would directly impact LGDs and repossession values.

Asked by Rajiv Mehta (YES Securities)

Rating Upgrade Progress and Expectations Direct
I don't really see anything that is further pending or expected from us... they wanted to wait for one full financial year which we completed in this year March.

Rating upgrade would meaningfully reduce cost of funds. Management believes all requirements met post-merger integration.

Asked by Gaurav Kochar (Mirae Asset)

Asset Quality Resilience Despite Industry Stress Direct
Repo has come down to all players... people don't want to give up the asset. So, the repayment has been quite good.

Low repossession rates across industry due to high asset prices; structural tailwind for asset quality but could reverse if vehicle prices correct.

Asked by Kunal Shah (Citigroup)

1 min read 4 chapters

Detailed narrative

Broad-Based Growth Defying Election Concerns

Disbursements surged 23.82% YoY to Rs 37,710 crores, significantly beating expectations as elections had minimal impact on business. AUM crossed Rs 2.33 lakh crores with 20.82% YoY growth. CV disbursements at Rs 14,024 crores, MSME at Rs 6,207 crores, and PV at Rs 7,406 crores. Management expects to exceed 15% AUM growth guidance but declined to quantify, emphasizing bottom-line over top-line focus.

MSME and Gold Loan Branch Expansion Strategy

MSME product currently offered in ~720 branches (up from 550 legacy + 170 additions). Plans to add 175 more branches over 2 years, reaching ~900. Gold loan available in 1,500 branches with 500 more to be added. MSME lending is 70% to small businesses in service and trading sectors, 30% manufacturing, with average ticket size of Rs 10 lakhs and 60% South / 40% non-South geographic mix.

Funding Diversification and Rating Upgrade Potential

Cost of debt at 8.96%, down from 9.01% in March. Diversified liability mix: retail deposits 24%, capital markets 20%, term loans 26%, securitization 15%, ECBs 14%. Retail deposits have 40-month average tenure at 8.3-8.4% cost with 75 bps acquisition cost. Liquidity coverage ratio at 225%. Management believes all rating upgrade prerequisites met; awaiting agency decision.

Asset Quality Benefiting from Structural Vehicle Market Tailwinds

Gross Stage-3 improved to 5.39% from 6.03% YoY with continuous improvement over 30 months. Used vehicle prices up 10-12% YoY, reducing repo activity across the industry as borrowers prefer retaining appreciating assets. S&P upgraded India's sovereign outlook to Positive. Two-wheeler sales grew 20.4% in Q1, supporting Shriram's largest customer segment.

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