SHRIRAMFIN - Shriram Finance Limited Share Price

During the Q3 FY '26 earnings call, Shriram Finance management offered a positive outlook for the company's future growth, bolstered by favorable economic indicators. They highlighted India's robust GDP growth rate of 8.2% and controlled inflation, with consumer prices around 1.33%. The Reserve Bank of India (RBI) cut the repo rate by 25 basis points to 5.25%, indicating potential for further growth and lower borrowing costs.

Key forward-looking points shared by the management include:

1. Disbursement Growth: Management reported a 14.17% year-on-year increase in disbursements, totaling INR 48,645 crores compared to INR 42,606 crores in Q3 FY '25.

2. Asset Under Management (AUM): AUM grew by 14.63% from the previous year to INR 2,91,709.03 crores, indicating strong operational performance.

3. Net Interest Income: They achieved a 16.17% increase in net interest income, amounting to INR 6,764.09 crores, and reported a net interest margin of 8.58%.

4. Profit After Tax (PAT): PAT saw a 21.21% growth, reaching INR 2,521.67 crores, excluding one-time gains from stake sales.

5. Credit Quality: Gross Stage 3 loans decreased to 4.54%, improving from 5.38% in Q3 FY '25 and 4.57% in the previous quarter, marking continuous improvement in asset quality.

6. Cost of Borrowing: The total cost of liabilities reduced by 14 basis points to 8.69%, with an incremental borrowing cost of 7.73% expected to improve following recent credit rating upgrades.

7. Expectations: Management anticipates that the upcoming budget presentation on February 1st could catalyze infrastructure investment, further supporting vehicle sales and overall growth.

The management expressed confidence in sustaining growth rates of 18%-20% in the coming years, underpinned by a strong rural economy and increasing vehicle financing demand.

Question 1: "The equity raise is about 12.5% of your assets. How should we assume that cash runs down, and do you have a timeline on that?"

Answer: The equity infusion will be around INR 40,000 crores. Our quarterly disbursement typically ranges from INR 45,000 crores to INR 50,000 crores. Hence, this cash won't remain for long. We'll focus on engaging debt investors while ensuring growth picks up promptly.

Question 2: "What profile do the customers you lose typically have, and how do their yields compare to your current risk-adjusted NIMs?"

Answer: Customers usually upgrade after 6-8 years with us, moving to banks or captives. About 30% of our customers shift, and they often have a good track record, allowing us to offer competitive rates. If we stay within 100-150 bps of bank rates, they'll likely remain with us.

Question 3: "With your Tier 1 ratio expected to be in the 30s, how do you see your product ambitions evolving?"

Answer: We aim to stay within our core strengths in vehicle financing, while also expanding our MSME ticket sizes through secured lending. As the Indian GDP grows at 8%, we anticipate vehicle sales increasing by 12-15% in the coming years, allowing us to efficiently utilize the new capital.

Question 4: "What is your forecast for net interest margins while managing funding costs and credit risk?"

Answer: We expect to maintain net interest margins around 8.5%, and with our partnership with MUFG, we foresee rates coming down by 100 bps over the next two years. We will also pass on some benefits to customers, expected to enhance ROE and ROA.

Question 5: "Could you provide insights on the current trends in the commercial vehicle segments for January?"

Answer: The initial days of January showed weak volumes due to auspicious periods, but from the 16th, we're seeing improving credit growth as customers begin purchasing vehicles. Demand for LCVs and SCVs is strong, driven by rural consumption patterns.

Question 6: "What is your outlook on asset quality for MSME and if any early stresses are being noticed?"

Answer: We do not see stresses as problematic but instead temporary due to recent market uncertainties. We've closely monitored our MSME portfolio, and we believe Stage 3 may rise slightly without converting into NPAs; the situation appears manageable overall.

Question 7: "How do you see the heavy commercial vehicle market evolving given the slower infrastructure spending?"

Answer: Growth in heavy vehicles remains cautious due to lower infrastructure spending, which impacts demand. We expect growth to be single-digit until governmental spending increases. Meanwhile, LCVs and last-mile delivery vehicles remain key growth areas.

Question 8: "What measures are you taking to ensure consistent asset quality across your lending segments?"

Answer: We focus on assessing customers individually, rather than relying solely on credit scores, thus maintaining differentiated pricing. This strategy helps us manage risks while ensuring we attract and retain more reliable customers amidst varying credit tendencies.

Question 9: "How do you plan to manage the increasing costs reflected in employee expenses?"

Answer: The increase in employee costs is primarily due to incentive schemes for the festive season. These incentives were paid significantly in Q3, contributing to the upward trend in expenses, even though headcount has declined.

Question 10: "What is your expected trajectory for the 2-wheeler and MSME segments in the near term?"

Answer: We recognize some deceleration but are confident in our strategy to grow past the 20% mark in MSME. Adjustments made due to prior market fluctuations will allow us to regain robust growth patterns moving forward.