Shriram Finance Limited — Q2 FY25 earnings call

Call held 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

  • 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

Key financials

  1. AUM ₹2.43L Cr +19.9%YoY
  2. Disbursements ₹39,974 Cr +15.5%YoY
  3. Net Interest Income ₹5,607 Cr +16.4%YoY
  4. Net Interest Margin 8.7%
  5. Profit After Tax ₹2,071 Cr +18.3%YoY
  6. EPS ₹55.09 +23.3%YoY
  7. Gross Stage-3 5.3%
  8. Net Stage-3 2.6%
  9. Credit Cost 1.8%
  10. Cost-to-Income Ratio 27.9%
  11. Total Debt ₹2.08L Cr
  12. Cost of Liability 9%
  13. Employee Count 77,764

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 ₹15,004 Cr 37.5%
Passenger Vehicles ₹7,595 Cr 19.0%
MSME ₹6,876 Cr 17.2%
Gold Loans ₹2,697 Cr 6.7%
Two Wheelers ₹2,555 Cr 6.4%
Construction Equipment ₹2,267 Cr 5.7%
Personal Loans ₹2,081 Cr 5.2%
Farm Equipment ₹899 Cr 2.2%

Guidance & targets

Growth

  • CV Portfolio Growth Growth · H2 FY25 · High confidence 17%-18%
    We should grow our CV portfolio, next 2 quarters should grow at 17%-18% comfortably.

    — Y.S. Chakravarti

Asset Quality

  • Gross Stage-3 Asset Quality · FY25 · Medium confidence ~5%
    We are targeting to improve our stage three to around 5% level.

    — Umesh Revankar

Margins

  • NIM Margins · FY25 · Medium confidence Maintain current level (~8.7-8.8%)
    The net interest margin should remain at present level.

    — Umesh Revankar

Risks & concerns

  • Personal loan growth deliberately slowed amid regulatory concern

    medium

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

    Management acknowledged

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

    medium

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

    Both acknowledged

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

    medium

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

    Management acknowledged

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

    low

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

    Analyst acknowledged

Areas of evasion (1)

  • Customer cohort data deferred to IR team offline

Q&A highlights

3 direct
Resilience Against Industry-Wide Asset Quality Stress Direct
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)

Gold Loan LTV Reduction on Regulatory Advice Direct
We have reduced our LTVs on gold to around 60%-65%... the regulator advised us it is better to reduce rather than provide.

Regulatory intervention on gold loan LTVs signals supervisory scrutiny. Reduced from 70-73% to 60-65%, impacting gold loan growth trajectory.

Asked by Raghav Garg (Ambit Capital)

Used Vehicle Market Dynamics Supporting Collections Direct
Used vehicle prices are holding very steady... per day running kilometers has increased for most of these vehicles. So, cash flows also have improved.

Strong used vehicle prices and improved utilization explain Shriram's better asset quality vs peers; key risk if this reverses.

Asked by Raghav Garg (Ambit Capital)

1 min read 4 chapters

Detailed narrative

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.

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.

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.

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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