Shriram Finance Limited — Q4 FY24 earnings call

Call held 26 Apr 2024

Management summary

Shriram Finance delivered its best post-merger quarter with 49% PAT growth and 21% AUM growth. NIM expanded to 9.02% driven by favorable product mix towards higher-yielding assets. Management's strategic pivot to prioritize bottom-line over top-line growth was emphasized, with 15% AUM guidance maintained despite 21% delivery. Personal loan growth slowed proactively amid market concerns. Housing subsidiary exploring growth capital options including potential disinvestment.

Highlights

  • AUM grew 21.1% YoY to Rs 2,24,862 crores; 4.96% sequential growth

  • Disbursements at Rs 39,327 crores, up 26.64% YoY from Rs 31,054 crores

  • NII grew 20.02% YoY to Rs 5,336 crores; NIM at 9.02% vs 8.55% in Q4 FY23

  • PAT surged 48.73% YoY to Rs 1,946 crores; EPS at Rs 51.79 vs Rs 34.94

  • Gross Stage-3 improved to 5.45% from 6.21% YoY; Net Stage-3 at 2.70% vs 3.10%

  • Credit cost at 2.06% for Q4; 2.06% for full year FY24

  • ROE target of 16-18% with 17%+ expected in FY25 and 18% by FY26

  • Cost of debt at 9.01%; incremental cost also ~9%

Key financials

  1. AUM ₹2.25L Cr +21.1%YoY
  2. Disbursements ₹39,327 Cr +26.6%YoY
  3. Net Interest Income ₹5,336 Cr +20%YoY
  4. Net Interest Margin 9%
  5. Profit After Tax ₹1,946 Cr +48.7%YoY
  6. EPS ₹51.79 +48.2%YoY
  7. Gross Stage-3 5.5%
  8. Net Stage-3 2.7%
  9. Credit Cost 2.1%
  10. Cost-to-Income Ratio 26.7%
  11. Total Debt ₹1.86L Cr
  12. Cost of Debt 9%
  13. Employee Count 74,645

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 ₹15,425 Cr 39.2%
Passenger Vehicles ₹6,706 Cr 17.1%
MSME ₹6,372 Cr 16.2%
Gold Loans ₹3,249 Cr 8.3%
Two Wheelers ₹2,602 Cr 6.6%
Construction Equipment ₹2,354 Cr 6.0%
Personal Loans ₹1,722 Cr 4.4%
Farm Equipment ₹894 Cr 2.3%

Guidance & targets

Growth

  • AUM Growth Growth · FY25 · High confidence 15%
    Our focus will be more on a granular small ticket and high-yielding products... the entire energy will be on growing the bottom line faster than the top line.

    — Umesh G. Revankar

Profitability

  • ROE Profitability · FY25-26 · High confidence 17%+ in FY25, 18% by FY26

    From 16% today

    We have given guidance of 16% to 18% as the range... this financial year, we should be able to cross 17%. And definitely, by '26 we will be 18%.

    — Umesh G. Revankar

Margins

  • NIM Margins · FY25 · High confidence ~9%
    Our intent is to maintain 9%, and the product mix definitely will continue to have a focus on high-yielding assets.

    — Umesh G. Revankar

Asset Quality

  • Gross Stage-3 Target Asset Quality · FY25 · Medium confidence ~5%

    From 5.45% today

    We will be moving towards 5% by the end of the financial year. Net will be around 2.5%.

    — Umesh G. Revankar

  • Credit Cost Asset Quality · FY25 · High confidence ~2%
    Our target is around 2%. This year we ended up with 2.06%... should be able to maintain around that level.

    — Umesh G. Revankar

Risks & concerns

  • Cost of debt inching up - 19 bps increase YoY, incremental at ~9%

    medium

    FD rates raised 5-20 bps in select buckets. Large ECB borrowing done in Q4. Management doesn't foresee further cost increase but rates have limited downside.

    Analyst downplayed

  • Election-driven slowdown expected in Q1 FY25

    low

    Government machinery involved in election duty expected to slow CAPEX activity and infrastructure spending in first 2 months, impacting credit demand.

    Management acknowledged

  • Housing subsidiary strategic uncertainty

    low

    Growing fast (71% AUM growth) and needs growth capital. All options open including full sale. Decision pending creates uncertainty for consolidated entity.

    Analyst acknowledged

Q&A highlights

3 direct
ECL Model Changes and Stage-1 Provision Increase Direct
We have also factored the day stamping which we started doing 1.5 years back... that has led to marginal increases in the PD.

Stage-1 ECL rose from 3% to 3.3% due to PD reassessment incorporating day-stamping and 5-year data. Management says stabilized at this level.

Asked by Gaurav Kochar (Mirae Asset)

Used CV Price Dynamics and Growth Outlook Direct
15% growth, 5% is due to the price increase. And 10% is due to the new addition... there will be a robust supply of used vehicle for the next 4 to 5 years.

Quantifies ticket size inflation vs volume growth. Used vehicle supply constrained now but expected to expand from 2022+ vintages entering secondary market.

Asked by Chandrasekhar Sridhar (Fidelity International)

Fraud Controls Post Industry Incident Direct
We have around 150-odd member internal audit team who visits around 2,300 branches... we also have a 200-member operational audit team.

Addressed concerns after a competitor faced a large single-customer fraud. 350-member combined audit/operational team provides some comfort on controls.

Asked by Renish (ICICI Securities)

1 min read 4 chapters

Detailed narrative

Post-Merger Integration Delivering Results

FY24 was the first full year post-merger and delivered stellar results: AUM grew 21.1% to Rs 2.25 lakh crores, PAT surged 48.73% to Rs 1,946 crores, NIM expanded to 9.02%. Gold loan branches expanded to 800-900, MSME to 600 branches. Product integration ongoing in phased manner - not all 3,000 branches will get all products, using hub-and-spoke model for MSME. Employee additions slowing as bench created.

Strategic Pivot to Profitability Over Growth

Despite delivering 21% AUM growth, management maintained 15% guidance for FY25, emphasizing bottom-line over top-line. Focus on granular, small-ticket, high-yielding products. ROE trajectory guided at 17%+ for FY25 and 18% by FY26 from current 16%+. CV growth expected at 11-12% with other products growing 20%+ to compensate. Used vehicle price increase contributed ~5% of 15% CV growth.

Macro Tailwinds and Rural Economy Optimism

India GDP grew 8.4% in Q3 FY24. S&P upgraded India's sovereign outlook to Positive. IMD forecast above-normal monsoon at 106% of LPA for 2024. Budget allocated Rs 11.11 lakh crores for CAPEX with focus on Eastern India and Rs 1.5 lakh crores interest-free loans to states. GST collections reached Rs 1.78 lakh crores in March, second highest ever.

Asset Quality Trajectory and ECL Model Updates

Gross Stage-3 improved to 5.45% from 6.21% YoY with credit cost at 2.06%. Stage-1 ECL rose from 3% to 3.3% due to annual PD/LGD reassessment incorporating day-stamping data and 5-year historical data. LGD improved from 41.45% to 38.08% QoQ. Write-offs at Rs 805 crores with incremental provisioning of Rs 456 crores. Management targets Stage-3 at 5% and net Stage-3 at 2.5% by FY25-end.

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