SHRIRAMFIN - Shriram Finance Limited Share Price

Management for Shriram Finance provided an optimistic outlook during the earnings call for Q1 FY'25-'26. Key forward-looking points highlighted include:

1. Economic Growth: Management expects India's GDP to sustain a growth rate of 6.5% for the financial year. They noted a significant easing in inflation, with consumer inflation reaching a low of 2.10%, the lowest in six years.

2. Disbursement Growth: The company's disbursement growth was recorded at 13.01%, totaling Rs. 41,816.75 crores compared to Rs. 37,001.65 crores in the previous year.

3. Asset Under Management (AUM): AUM grew by 16.62% year-on-year, reaching Rs. 2,72,249.01 crores from Rs. 2,33,443.66 crores.

4. Profit After Tax (PAT): PAT increased by 8.84% to Rs. 2,155.73 crores, demonstrating strong financial performance.

5. Credit Cost Guidance: Management forecasts that credit costs will remain under 2% of total assets for the full year.

6. Net Interest Margin (NIM): They aim to improve NIM to around 8.5% by the end of FY'26, primarily by reducing borrowing costs, which currently stand at 8.88%.

7. Vehicle Financing: The company reported healthy demand in commercial vehicle financing and has a robust outlook due to the strong utilization levels among existing operators.

8. Market Expansion: Management indicated ongoing efforts to strengthen their footprint in rural and semi-urban markets, highlighting a strategic focus on customer retention and satisfaction.

Overall, management is optimistic about the upcoming quarters, especially with improving economic conditions in rural areas, which they believe will enhance their performance.

Major Questions and Answers from the Q&A Section

1. Question: "There's a 40 basis point increase in GS2 assets. Could you explain where this is coming from? Is it seasonal or should we be worried about it? What's your guidance on credit cost for the full year?"

   Answer: It's primarily seasonal due to an early onset of monsoon, leading to temporary cash flow mismatches among customers. While we noted the Stage-2 increase, the credit cost improved overall and will stay below 2% for the full year, measured against total assets.

2. Question: "Is there any fair value gain impacting reported NII? Any explanation for differences between reported and management NII?"

   Answer: The fair value changes yielded a profit of Rs. 134.66 crores this quarter, which does appear in the reported NII. The absence of assignment income, unlike previous quarters, also impacts reported figures, but no other significant factors influenced the numbers.

3. Question: "Regarding MSME growth, you've indicated a slowdown. How do you see this affecting your overall AUM growth estimates?"

   Answer: The MSME sector was slower this quarter due to typical seasonal trends. However, we remain confident about achieving our full-year guidance as demand typically picks up in the next quarters, driven by seasonal business cycles.

4. Question: "How is trucking activity doing? Are cash flows improving for operators?"

   Answer: Trucking activity remains strong. While demand from new entrants has decreased, existing operators benefit from good revenue and freight rates. Cash flows are stable, though some seasonal disruptions due to heavy rains may cause temporary cash flow mismatches.

5. Question: "Can you share details on the repossession trends quarter-on-quarter?"

   Answer: There has been little change in repossession trends. Most customers have not defaulted due to high resale values making it advantageous for them to retain their vehicles. Any uptick in repossession is marginal and not representative of broader trends.

6. Question: "What are your expectations for growth in the passenger vehicle segment?"

   Answer: Although entry-level car sales are down, demand is shifting to compact SUVs and used vehicles. We also anticipate strong growth as the rural sector sees unmet demand for transportation, bolstering our market position in passenger vehicles.

7. Question: "What strategies do you have regarding deposit rates, and how does that compare to NCDs?"

   Answer: We'll reduce deposit rates further, anticipating costs around 7.6%. Deposits remain a key source due to our loyal customer base, particularly senior citizens. Maintaining competitive rates is a priority, while NCDs have a higher interest burden.

8. Question: "Can you comment on the decline in personal loan disbursements? Is this tied to delinquency concerns?"

   Answer: The decline in personal loan disbursements isn't due to a reduction in focus but rather a strategic decision to assess market conditions. We're adjusting our approach but maintain a steady commitment to personal loans overall.

9. Question: "What measures do you take for accounts that move into Stage-2, and how do you prevent them from going to Stage-3?"

   Answer: We actively engage with customers to address cash flow mismatches, aiming to bring them back to Stage-1. Our repossession ability aids in managing default risks effectively without allowing significant movement into Stage-3.

10. Question: "What are your estimates for exit NIM and credit costs by the end of FY'26?"

    Answer: We aim to achieve an exit NIM of around 8.5% by year-end, with credit costs expected to remain around 2% for total assets. Our ongoing efforts to lower funding costs should positively influence these metrics.