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    Shriram Finance

    SHRIRAMFINGood
    Financial Services·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

    8

    • 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%

    What Changed2

    vs Q2 FY25

    Guidance items3 → 5 (+2)Risks discussed4 → 3 (-1)

    Key financials

    Single quarter

    13 metrics
    1. 01AUM₹2.33L Cr+20.8%YoY
    2. 02Disbursements₹37,710 Cr+23.8%YoY
    3. 03Net Interest Income₹5,354 Cr+20.6%YoY
    4. 04Net Interest Margin8.8%
    5. 05Profit After Tax₹1,981 Cr+18.2%YoY

    Segment breakdown

    Commercial Vehicles
    ₹14,024 Cr37.2%
    Passenger Vehicles
    ₹7,406 Cr19.6%
    MSME
    ₹6,207 Cr16.5%
    Two Wheelers
    ₹2,732 Cr7.2%
    Gold Loans
    ₹2,652 Cr7.0%
    Personal Loans
    ₹2,014 Cr5.3%
    Construction Equipment
    ₹1,850 Cr4.9%
    Farm Equipment
    ₹820 Cr2.2%
    Treemap· Share of Disbursements

    Guidance & targets

    5
    CategoryTargetPriority
    Growth
    AUM Growth
    15% (expect to exceed)
    		High
    Growth
    CV Portfolio Growth
    ~12%
    		Medium
    Growth
    MSME Growth
    20%+
    		High
    Growth
    Two-Wheeler Growth
    15%-18%
    		Medium
    Distribution
    MSME Branch Addition
    175 branches
    		High

    Risks & concerns

    5
    RiskSeverity

    Gold loan AUM declining despite rising gold prices

    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

    medium

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

    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

    low

    Farm equipment Stage-3 at elevated 9% level

    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

    low

    Areas of Evasion(2)

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

    Q&A highlights

    3

    “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)

    1 min read4 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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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