SHRIRAMFIN - Shriram Finance Limited Share Price

The management of Shriram Finance Limited has provided a positive outlook amidst the current economic climate, focusing on the rural economy's resilience and improved agricultural forecasts. Key forward-looking points from the management include:

1. Growth Expectations: The company expects an overall growth of 15% for FY'26, with specific segments like used commercial vehicles projected to grow between 12% to 15%. The MSME segment is expected to grow around 20%.

2. Economic Indicators: India's GDP growth is forecasted at 6.5% for the fiscal year, with improving inflation rates. The RBI's recent repo rate cut to 6% is anticipated to reduce borrowing costs, with improvements expected in the next 3 to 6 months.

3. Disbursement Growth: The company has reported a disbursement growth of 14.04% YoY, with Q4 FY'25 disbursements totaling Rs. 44,847.93 crores, up from Rs. 39,326.86 crores in the same quarter last year.

4. Asset Under Management (AUM): AUM has increased by 17.05% over Q4 FY'24, amounting to Rs. 263,190.27 crores.

5. Net Interest Income and Margins: The net interest income for Q4 FY'25 grew by 13.4% YoY to Rs. 6,051.19 crores, while net interest margin (NIM) has seen a slight decline to 8.25% from 9.02% a year ago. Management expects potential improvement in NIM to around 8.6% following liquidity normalization and the transmission of interest rate cuts.

6. Asset Quality: The gross Stage-3 assets decreased to 4.55% from 5.45% in Q4 FY'24, indicating an improvement in asset quality. Management is confident the credit cost will stabilize below 2% as the rural economy continues to recover.

7. Dividend Declaration: A final dividend of Rs. 3 per equity share was recommended, amounting to a total dividend of Rs. 9.9 for FY'25 post-split adjustment.

Overall, management expresses optimism for sustained growth and stability throughout the next fiscal year, backed by the recovering rural economy and improving macroeconomic conditions.

1. Question: "Can you tell us how do you see the asset quality trends playing out over the next year? What kind of seasonal patterns do you expect next year?"

   Answer: We anticipate that the rural economy will buffer against potential urban slowdowns. Most of our loans are secured, and while we're seeing some temporary stress in specific remote areas, the overall rural situation is improving. We expect credit costs to remain well-managed at around 2.07% for Q4 and aim to keep it below 2% in the upcoming financial year, bolstered by positive monsoon predictions and governmental infrastructure spending.

2. Question: "What is the reason for the decrease in CV portfolio growth?"

   Answer: Growth in the commercial vehicle (CV) segment has been sluggish, hovering around 10%-11% due to flat sales and a lack of transactions in the used vehicle market. We anticipate that used vehicle financing will pick up as economic activity improves. For FY'26, we project CV growth to reach 12%-15%.

3. Question: "Do you expect any impact on operations if the economic slowdown continues?"

   Answer: Our focus on the rural economy largely mitigates risks associated with urban downturns. Approximately 85% of our branches are in semi-urban and rural regions linked to agriculture, so we're confident in maintaining steady operations despite urban sluggishness.

4. Question: "Can you elaborate on the provisioning costs and how they were impacted?"

   Answer: For this quarter, our credit costs increased primarily due to a slight rise in Stage-3 assets and overall portfolio growth. We've been proactive, maintaining our provisioning ratios, and we're not expecting to see significant additional stress or increased costs moving forward.

5. Question: "What are the expectations regarding credit costs in Q1 and Q2?"

   Answer: We're targeting credit costs to remain stable and close to our guidance level of around 2%. The recovery in rural economies from the recent good agricultural output is expected to support this stability, and we do not foresee significant slippage into Stage-3 from the Stage-2 accounts.

6. Question: "What specific segments are contributing to the slippages?"

   Answer: The slippage has been concentrated mainly in certain geographies affected by slower economic conditions, especially in central India, but we're seeing improvements now. The better than expected Rabi crop yields should enhance cash flow and assist in reducing stress levels among borrowers.

7. Question: "Can you clarify the impact of the recent technical write-off on your financials?"

   Answer: The technical write-off of Rs.2,345 crores had no impact on P&L as these were fully provided assets. This move was strategic, enhancing asset quality metrics post adjustment. The gradual approach to maintaining provisioning levels should result in manageable risks moving forward.

8. Question: "What is the company's perspective on future growth?"

   Answer: We're maintaining our growth guidance at around 15%, considering broader economic recovery signals. We believe that an improved rural economy supported by government initiatives can enhance credit demand.