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    Shriram Finance Limited

    SHRIRAMFINGood
    Financial Services·25 Oct 2024
    Management Summary

    Shriram Finance delivered strong Q2 FY25 results with nearly 20% AUM growth and 18% PAT growth, outperforming broader NBFC sector on asset quality. Management maintained confidence in portfolio health citing asset-backed lending and used vehicle focus. Gold loan LTVs reduced to 60-65% from 70-73% on regulatory advice. Personal loan growth deliberately slowed to address regulatory concerns, with plans to resume in 2 quarters.

    Highlights

    8

    • AUM grew 19.94% YoY to Rs 2,43,043 crores; 4.11% sequential growth

    • Disbursements at Rs 39,974 crores, up 15.51% YoY from Rs 34,606 crores

    • Net Interest Income grew 16.37% YoY to Rs 5,607 crores; NIM at 8.74%

    • PAT grew 18.30% YoY to Rs 2,071 crores; EPS at Rs 55.09 vs Rs 44.67

    • Gross Stage-3 improved to 5.32% from 5.79% YoY; Net Stage-3 at 2.64%

    • Credit cost at 1.84% vs 2.02% in Q2 FY24

    • Stock split approved: face value Rs 10 to Rs 2 (5:1 split); dividend of 220% (Rs 22/share) for H1

    • Shriram Housing Finance disinvestment to Warburg Pincus affiliate in progress

    What Changed1

    vs Q4 FY25

    Guidance items7 → 3 (-4)

    Key financials

    Single quarter

    13 metrics
    1. 01AUM₹2.43L Cr+19.9%YoY
    2. 02Disbursements₹39,974 Cr+15.5%YoY
    3. 03Net Interest Income₹5,607 Cr+16.4%YoY
    4. 04Net Interest Margin8.7%
    5. 05Profit After Tax₹2,071 Cr+18.3%YoY

    Segment breakdown

    Commercial Vehicles
    ₹15,004 Cr37.5%
    Passenger Vehicles
    ₹7,595 Cr19.0%
    MSME
    ₹6,876 Cr17.2%
    Gold Loans
    ₹2,697 Cr6.7%
    Two Wheelers
    ₹2,555 Cr6.4%
    Construction Equipment
    ₹2,267 Cr5.7%
    Personal Loans
    ₹2,081 Cr5.2%
    Farm Equipment
    ₹899 Cr2.2%
    Treemap· Share of Disbursements

    Guidance & targets

    3
    CategoryTargetPriority
    Growth
    CV Portfolio Growth
    17%-18%
    		High
    Asset Quality
    Gross Stage-3
    ~5%
    		Medium
    Margins
    NIM
    Maintain current level (~8.7-8.8%)
    		Medium

    Risks & concerns

    5
    RiskSeverity

    Personal loan growth deliberately slowed amid regulatory concern

    97-98% of PL disbursement goes to existing customers, but growth slowed proactively. Plans to resume in 2 quarters pending regulator comfort. — Management acknowledged

    medium

    Gold loan portfolio growth impacted by LTV reduction from 70-73% to 60-65%

    Regulatory advice to reduce LTVs rather than keep classifying breaching loans as NPAs. Growth in gold segment slowed to ~12% YoY. — Both acknowledged

    medium

    CV sales declining 11% in Q2 due to reduced government infrastructure spending

    Total CV sales declined 11% QoQ. Government spending on infra slowed post-elections. Used vehicle prices holding steady provides some buffer. — Management acknowledged

    medium

    Operating expenses increased 8% QoQ due to branding and sourcing agent costs

    Fees for two-wheeler sourcing agents and branding costs drove increase. Management says it won't be repeated at same level. — Analyst acknowledged

    low

    Areas of Evasion(1)

    • Customer cohort data deferred to IR team offline

    Q&A highlights

    3

    “This slippage has actually improved as a percentage. It is a 5.3%... there are deterioration in certain geographies and certain segments. Mostly unsecured loans, MFI loans.”

    Shriram claims immunity from broader NBFC stress due to secured lending focus. Critical to watch if this divergence from peers holds up.

    asked by Chintan Joshi (Autonomous)

    1 min read4 chapters

    Detailed Narrative

    01

    Strong Disbursement and AUM Growth Despite CV Weakness

    AUM grew 19.94% YoY to Rs 2,43,043 crores with disbursements of Rs 39,974 crores (up 15.51%). CV segment recorded Rs 15,004 crores despite industry sales declining 11% in Q2. MSME disbursements were Rs 6,876 crores, emerging as a key growth driver as merger benefits expand product reach across branches. PV disbursements at Rs 7,595 crores were strong.

    02

    Asset Quality Outperformance vs Peers

    Gross Stage-3 improved to 5.32% from 5.79% YoY with credit cost at 1.84% (vs 2.02% a year ago). Management attributes outperformance to used vehicle focus (vs peers' new vehicle portfolios), strong used vehicle prices, and improved vehicle utilization (higher km/day). Stage-1 PD at 9.06% and Stage-2 PD at 20.98% with LGD at 38.59%. Geographic stress limited to certain central India regions.

    03

    Regulatory-Driven Portfolio Adjustments

    Two key regulatory-influenced changes: Personal loan growth deliberately slowed despite portfolio quality being fine, as regulator expressed concern over industry-wide PL growth. Gold loan LTVs reduced from 70-73% to 60-65% on RBI advice, after loans were breaching 75% exit LTV norms too quickly due to interest accumulation on bullet repayment products. Both moves prioritize regulatory relationship over near-term growth.

    04

    Liability Diversification and Merger Benefits

    Total debt at Rs 2,07,820 crores with well-diversified mix: term loans 24%, retail deposits 24%, domestic capital markets 19%, securitization 16%, ECBs 15%. Cost of liability stable at 8.97%. Leverage at 3.99x. Shriram Housing Finance subsidiary (being divested to Warburg Pincus) showed strong AUM growth of 40.87% and PAT growth of 36.87%. MSME and gold products still being rolled out to all branches, indicating further merger synergy potential.

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