Shriram Finance Limited (511218) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Shriram Finance Limited Q1 FY '24 Earnings Conference Call. [Operator Instructions] I now hand the conference over to Mr. Umesh Revankar, Executive Vice Chairman. Thank you, and over to you, sir.

Thank you. Good evening friends from India and Asia. A warm welcome to all of you who've joined this call. Greetings also to those who joined from western part of the world. To present our Q1 earnings call today. I have with me Mr. Chakravarti, Managing Director; Joint Managing Director and CFO, Mr. Parag Sharma; and Joint Managing Director, Mr. Sunder; Sridharan; Sudarshan; Nilesh and Mr. Jilani. We also have with us Mr. Ravi Subramanian, MD, CEO of our subsidiary, Shriram Housing Finance Limited and Sanjay Mundra, our Investor Relations Head. Financial year 2024 is also when Shriram Group is celebrating our golden jubilee. So this is the 50th year of our existence. I take this opportunity to thank all of our group customers, investors, deposit holders, team members and all other stakeholders for enabling our group to reach this milestone of 50 years of existence. Thank you very much. Coming to the economy, the performance of which is intervened with our company's own performance. Indian economy grew at 7.2% in FY '23, exceeding government's projection. India was the fastest growing major economy in the world. And this performance underscored the country's resilience compared to general slowdown in Europe and other parts of the world. The GDP growth outlook for FY '24 is currently expected more than 6%. With good monsoon, well-contained inflation, increasing consumption would likely to boost the private CapEx. The government spend on logistic infrastructure would increase international manufacturing to move to India. And that means Indian economy is likely to exceed the expectation. On inflation, the CPI index has risen to be benign in the first quarter of FY '24. In the month of April, it was 4.7% and it is the lowest since October '21. And following month, May '23, it came down further to 4.25% and in the month of June, it went up to 4.81% but still be below the RBI tolerance limits. The wholesale inflation was in negative territory throughout the first quarter. Meanwhile, RBI in it's MPC meeting retained the repo rate at 6.5% and guided for the inflation for the FY '24 at 5.1%. So we can expect for rate to remain at current level, if that is the overall guidance. On the rural economy, after having faced some headwinds in the last 18 months, mainly caused by the inflation and higher cumulative prices, Indian rural economy appears to be being well now. It has reflected in higher FMCG consumption plus 2-wheeler sales. The [indiscernible] are up, the MPC prices are up, and therefore, the [indiscernible] income and [indiscernible] income to be helping the rural economy to revive. As of the monsoon, southwest monsoon has recovered -- has covered entire country and we expect the current to be good. The current planting season is underway now. There is sufficient stocks of stable gains, which are wheat and rice. The procurement of which has helped the agri economy. While the official statistics on food grain production of FY '22, '23 season is a actively published, but it is estimated to be 24 million tonnes, which is 2.5% higher than the previous year estimate. And also, it represents record production levels for seventh year consecutively. Meanwhile, the government has set a target of 332 million for grain for this crop year, that is 2024, that is June to -- July to June which is 2.6% increase over the previous year. Overall, Kharif crop has been sown in around 53.6 million hectares till July 14, which is around 4.29% less than the previous year. But by the end of this month, it is likely to cover that depreciate. On GST collection, the Q1 '24 has seen a robust GST collection. And April '23, we saw highest ever GST collection of INR 1.87 lakh crores. The trend of GST collection continues into May with INR 1.57 lakh crores and June at INR 1.61 lakh crore. This helps the government's planned infrastructure spend. Now coming to our auto industry. The automobile industry has largely been doing good. Despite the fact that first quarter normally is dull one. The commercial vehicle, the CV sales aggregated 2,17,046 units compared to 2,24,488 units. And within CV, MHCV saw a growth of 2.5% year-on-year. That is 77,774 versus 75,854. Meanwhile, LCV sales was slightly lower at 139,272 against 148,674 a year ago. The passenger vehicle registered a growth of 9.4% with 9,95,974 units against 9,10,495 units previous year. Two-wheeler, again, has seen the growth with 11.2% in Q1 '24 versus Q1 FY '23 which was 41,40,964 units compared to 37,24,533 units. Three wheelers have seen the maximum growth of 89.4% growth with 1,44,475 units against 76,793 units. Tractors have again seen a growth of 19.23% over the previous year with 2,25,234 units against 1,88,903 units. The India construction equipment industry turned out best ever performance in FY '23 with 26% year-on-year increase in sales with 24,806 units being sold against 21,299 units. In India this kind of consumption of the sales is likely to become third largest market for construction equipment overtaking Japan in the year 2024. On the other permanent loan product that Shriram Finance offers is MSME. India has estimated 63 million MSME units registered and Shriram largely caters to micro and small with the average [ ticket ] size of around 1 million with which the company has been lecturing for nearly 2 decades now and wanting to scale it across the country with post-merger with a large number of branches and network being there. The growth of formal retail credit demand in India is the upward trajectory overall. And we see a lot of involvement happening from semi-urban and rural region also. The surge in demand is largely driven by digitally literate [indiscernible] younger generation who have embraced mobile technology for the daily transaction. Even the rural credit, which has -- which was dependent on local money lenders, now moving towards formal credit option with the JAM trinity helping them become part of digital economy. Recognizing this opportunity, we have forced a strategic collaboration with pioneering mobile payment platform, Paytm to extend financial services across the nation as a permanent player in delivering financial submission to unbanked population. This partnership holds immense significance for Shriram Finance. Being the largest retail NBFC in the country. This alliance will facilitate issuance of loans to credit card segment of the economy through a few taps of smartphone. With this new digital alliance, the company aims to reduce downtime for customers seeking instant credit, while retaining its position as [ First Aid ] financial service partner. Paytm [indiscernible] in QR and mobile payment has redefined the traditional loan distribution model with this focus on digital first credit distribution, ensuring access to users at the last mile. By combining Paytm's extensive reach and technological infrastructure with Shriram Finance's expertise in lending and underwriting, this partnership formed important force in financial servicing sector. With sourcing, distribution and servicing moving on digital -- on to digital platform, the cost of borrowing would certainly get reduced to the customers or the parents. This is going to be a game changer for small enterprises in improving business modules, increasing sales and expanding their market. We also are happy to inform that the S&P, the international rating agency upgraded our international ratings from BB- to BB. On merger synergies, the business is arising out of last year's amalgamation of Shriram Finance and Shriram City Union Finance, we continue to expand our product suite in our combined network of branches in Shriram Finance Limited. Process of 2 companies coming together and working as have been relatively seamless, and we are down in it. It appeals to all of us at Shriram Finance. It has always been [indiscernible]. Now, I request my colleague, Mr. Chakravarti to take over and run through the operational performance.

Thank you. Ladies and gentlemen, welcome to the earnings call for the first quarter of the new financial year. We have declared our results for the quarter earlier today, and I trust you have had the opportunity to pursue them and the related investor presentation which are available on the website of the stock exchanges. First, the merger which came into effect last year, our combined efforts are reflected in the results for the first quarter. And we hope they will only grow stronger progressively. The registered disbursement growth of 21.26% Y-o-Y, our disbursements in the first quarter aggregated to INR 30,454.80 crores versus INR 25,114.78 crores in Q1 FY '23 and versus INR 31,054.10 crores in Q4 FY '23. Our assets under management as of 30th June '23 has registered a growth of 18.56% over Q1 FY '23 and of 4.46% over Q4 FY '23. Our AUM stood at INR 193,214.67 crores as against INR 162,970.04 crores a year ago and INR 185,682.86 crores quarter ago. Our net interest income in Q1 FY '24 registered a growth of 11.31% year-on-year to INR 4,435.27 crores in the quarter as compared to INR 3,984.44 crores in Q1 FY '23 and INR 4,445.89 crores in Q4 FY '23. Our net interest margin was 8.32%, as against 8.12% in Q1 FY '23 and 8.55% in Q4 FY '23. We registered a PAT growth of 25.13% to INR 1,675.44 crores for the first quarter of FY '24 as compared to INR 1,338.95 crores in Q1 FY '23 and INR 1,308.31 crores in Q4 FY '23. Our earnings per share for the quarter stood at INR 44.73 against INR 35.76 in Q1 FY '23 and INR 34.94 in Q4 FY '23. On our asset quality, Gross stage-3 in Q1 FY '24 stood at 6.03% and Net stage-3 at 2.96% as against 6.27% Gross stage-3, and 3.32% Net stage-3 in Q1 FY '23, and 6.21% Gross stage-3, and 3.19% Net stage-3 in Q4 FY '23. Our credit cost for Q1 FY '24 stood at 1.62% as against 2.34% for Q1 FY '23 and 2.24% for Q4 FY '23. Our cost-to-income ratio was 27.29% in the first quarter as against 23.18% in Q1 FY '23. Our cost-to-income ratio in Q4 FY '23 was 28.29%. Regarding our subsidiary, Shriram Housing Finance, they have registered a disbursement growth of 139.42% over Q1 FY '23. Disbursements in the first quarter of this year were INR 1,902.61 crores as against INR 794.68 crores in Q1 FY '23 and INR 1,301.13 crores in Q4 FY '23. The assets under management for Shriram Housing Finance as on 30th June 2023 has grown by 64.39% year-on-year to INR 9,539.02 crores as against INR 5,802.64 crores in Q1 FY '23 and INR 8,046.60 crore in Q4 FY '23. The net interest income registered a growth of 41% in Q1 FY '24 to INR 85.27 crores as compared to INR 60.47 crores a year ago and INR 66.63 crores a quarter ago. Shriram Housing Finance registered a profit after tax growth of 51.07% to INR 45.64 crores as compared to INR 30.21 crores for Q1 FY '23 and INR 37.14 crore for Q4 FY '23. The EPS stood at INR 1.40 against INR 0.93 in Q1 FY '23 and against INR 1.14 in Q4 FY '23. Their Gross stage-3 for the first quarter of this year stood at 1% and Net stage-3 came in at 0.75% as compared to Gross stage-3 at 1.56% and Net stage-3 at 1.19% in Q1 FY '23 and at 0.93% Gross stage-3 and 0.69% at Net stage-3 for quarter 4 FY '23. I shall now request our Whole Time Director and CFO, Mr. Parag Sharma to highlight the activities centered around raising of resources and credit rating upgrades after which our Joint Managing Director, Mr. Sunder will brief you about our accounting and other aspects. Thank you.

Hello, everyone, I'm Parag. On the debt, we have total debt outstanding of INR 161,931 as of the June quarter, and the cost has gone up by around 7 basis points from 8.82% to 8.89%. We are maintaining diversity of liability sources, but the retail deposit at around 24%, external commercial borrowing both in the loan and bond format at close to 15%. The domestic capital market at 21%, bank borrowing at around 15% -- 25% and securitization, which is done for priority sector assets at around 15%. The liquidity is close to around INR 16,165 crores, and this will take care of our next 3 months of maturities, which is close to around INR 15,790 crores. We always had a policy of maintaining 3 months of liability repayment into liquid assets, and that continues to be there. The LCR ratio is at 202.83% versus 209% in the previous quarter. The debt to equity has slightly come down from 3.65% to 3.6%. This is on account of utilization of the excess liquidity, what we had and the ALM buckets continue to be positive and up to 1 year bucket, the cumulative surplus will be in excess of INR 26,000 crores. We have taken an ECB loan of 200 million in the last quarter through -- this is on the loan format through different banks. I hand over to Sunder for his comments.

Hello, everyone. The employee count as on 30th June 2023 was 66,343, an increase of 2,291 compared to the March number. And while on the ECL provisioning, the Stage-1 PD was 8.05%. And the Stage-2 PD was 18.88% and LGD was 42.32% as against the March number of 8.04% of Stage-1 PD, 18% of Stage-2 PD and 42.27% of the LGD. And we continue to hold COVID position. The amount as on 30th June was INR 1,008 crores. And as against an opening there is of INR 1,107 crores. We had utilized INR 99 crores in the current quarter. And okay. That's it from me, and we would open the forum for questions.

[Operator Instructions] The first question is from the line of Digant Haria from GreenEdge Wealth.

Congratulations on the good performance. Sir, 2 questions from my side. Sir, first is little on the recent performance that -- see, our -- in the last 12 months, we have seen fast growth in the old tough portfolio, which is the personal loans and MSME loans. These are typically -- these are higher leading loans, but still, our margins in this quarter has been under pressure. So if you can just explain that, like it's from the borrowing cost side or what is it?

It's a combination of both on the yield as well as the cost. The interest cost has gone up marginally by around 7 basis points and the yields have come down by 8 to 9 basis points, and that has caused the pressure on the NIM.

Sir, why would the yields come down because I see that is a faster growth in the stock.

Chakravarti here. So that's basically because in the last quarter, we have funded our -- the share of our new vehicles have gone up. Funding of new vehicles has gone up. That has primarily led to both passenger and commercial vehicles has gone up, which has led to a slight compression in yield.

Perfect. Perfect. That's helpful. The second question is maybe to both of you, Mr. Chakravarti and Revankar, when we look at this period of 2015 to 2020, both the Shriram Transport costs had credit costs in excess of 3% if you look at the whole 5-, 6-year bucket,. I understand we are migrating from 180 days to 90 days, and there was IL&FS and some, economy itself was patchy. But what has changed internally that we are now so confident of 2% kind of credit cost. Is it our collections, our credit rating? Or is it just that the vehicle prices are so high that even if you have to repossess, we'll not lose one. If any qualitative color you can give on this particular question?

Yes, it's a combination of everything. One is, the economy is really doing well. And the vehicle utilization levels have gone up and vehicle values or prices have gone. All this matters a lot for the operators. When the vehicle prices go up, people who would like to hold on to vehicle not to default because the moment before they induce the value of the vehicle rather they lose the increased value of the vehicles. That one thing primarily making them work little extra hard to retain the vehicle and operate. And second, their operating income has gone up. See, on an average, a vehicle used to operate around 19, 20 days earlier. And in the best of the days, it used to work for 22 to 23 days in a month. But today -- consistently in the last 2 years, you will see vehicles run around 25, 26 days in a month because there is a good utilization, good demand for the vehicle. The number of vehicles have not increased in the last 3 years. Even it's quite up, the economy is growing because the vehicle prices have gone up steeply by 25% to 30%. Since the vehicle prices have gone up, the buying of a new vehicle has slowed down that enables us and also the operator to use the existing vehicle for a longer time and also with the best profitability. All this has helped. This is -- not only it is in the vehicle department, whether it's personal vehical or passenger vehicle or commercial vehicle. Even in the business also, there is a significant improvement in the environment. Earlier, around 60%, 70% of our collection used to be in cash, where we have to go to customer and collect the cash. But last 4, 5 years, the cash component has come down. Most of them are digital transaction. That saves a lot of productive -- a lot of time, and there is a substantial improvement in the productivity for both customers and the employees that also helps the efficiency in the overall collection. So all these things really matters a lot. So the credit cost has rightly put it from the -- around 2.5% in the last -- a couple of years back, it has come down below 2%. And we believe this will continue to remain, and I don't see any further deterioration, and it should below at 2% in any point of time. One is the environment, one is vehicle price being up and the business we're operating, levels have gone up. All this have resulted in this.

Sir, thank you, that was a detailed response. And sir, just on the stock portfolio also, if you can just comment on the same because stock was usually 3.5% to 4% kind of credit cost in the past and on the Shriram City Union portfolio, also you can give this comments?

So that portfolio didn't as I was telling you we were -- you remember that we have been working on both credit and collections for quite some time. And I think plus added to that, the economy is doing well, it has resulted in what you see. I think this is not a flash in the pan. It's work across -- probably about 5, 6 years of hard work.

So just one more thing if I can squeeze in that whenever the environment deteriorate next, some day in the next 10 years, it is going to deteriorate again. But those days, we will have lesser credit costs than in the past because of all these operating efficiencies that you talked about.

Exactly.

[Operator Instructions] The next question is from the line of Gaurav Kochar from Mirae Assets.

Firstly, congratulations on the quarter. Just 3 questions from my side. First, and just extending the question asked by the previous participant, it is on the yield on loans, if I look at the mix today gold loan, personal loan, MSME loan, all these are typically higher yielding loans. The share of these loans have been going up as the AUM mix is moving faster towards these loans. Going forward, sir, taking a slightly normal term view maybe 2, 3 years, what do you think would be the overall share of these products, gold, personal loan and MSME, all of this combine. Today it's about 20% of the overall area. In 2 to 3 years, can we expect this to be at least 25%, 26% of the overall loan. And if that is the case, then structurally, don't you think we can have better yields on the overall portfolio?

Yes. See, as you rightly put it, there will be a small shift in the portfolio towards high yielding. So naturally, the net interest margins will improve. We are aiming at around 8.5% level of net interest margin by the end -- by the last quarter. So that is one. And one of the reasons for the margin increase for this quarter was because normally during the end of financial year, that is March, the demand for new vehicle goes up. So many of our customers upgraded to new vehicles during the March and this quarter. So what happens is when the new vehicle component goes up, the margins are a little lower in the new vehicle. So this normally you will see the demand coming up in the March, April, May. So these are the 3 months normally the new vehicle taking -- new vehicle offtake is high for our customer. So these are the 2 reasons. And as you rightly put it, making a slight changes in the overall portfolio, we'll be able to improve our margins as per the plan.

And then on AUM growth, this quarter, we grew 19% Y-o-Y. Your overall guidance has been 15%. There is also a tie-up that you have done with fintechs and you plan to do more tie-ups in the near term. So taking that queue and given that the growth and overall demand has been strong, do you see upgrading your guidance of 15% AUM growth?

See, as of now, we will stick to 15% guidance. But coming to the end of the second quarter, we'll be able to clearly say what slightly growth for the full year because we would like to see the monsoon coverage fully, and see how the rural economy shapes us and that will help us to give a concrete number. But as you indicated, this 18%, 19% is something in the first quarter is a good sign, and we can expect these numbers to be maintained for the full year.

Understood. Understood. And sir, in the fintech partnerships that you'll be doing, any sort of cap that you would have internally decided what percentage of AUM would be attributable to these fintechs or what percentage of your AUM can be sourced from these fintechs? Any sort of cap or any sort of number that you have in mind?

Right now, we are looking at around 5% of the total AUM. So that should be the target. And we will be growing very slowly there. We are not in a hurry to grow because we have the branch network reach, and this will be an additional sourcing for us. Plus we'll be combining both to see that we are most -- very effective in our disbursement and collection. Because for us, the relationship and collection matters much more than the sourcing, but this will help us to reach out to new set of our customers who are young, who are tech savvy and who would like to do business on digital mode.

And on, sir, cost. Coming to cost, this quarter cost to income was slightly elevated at 30% versus your guidance of 27%, 28% kind of cost-to-income steady state. So on a full year basis, do you see any risk to that 27%, 28% cost-to-income guidance? Or you believe we can still achieve 28% kind of cost-to-income ratio for full year?

Yes, we should be around 27%, 28%. I think we're very confident of managing it within that level.

Sure. And sir, just last question, if I may squeeze in. If I look at the subsidiary, Shriram Housing, I mean, very strong performance in this quarter, even growth was 18% Q-on-Q, even margin expanded by 130 basis points sequentially. So just wanted some color around where the growth is coming from. I see the share of LAP has gone up. So any sort of color that you'd like to give on this portfolio? And secondly, if I look at the capital position, clearly, it has -- it's just a share over 20% on the capital adequacy front. So do you see any capital raise in the subsidiary in this financial year and whether it will be Shriram Finance who will put in the capital or you're looking for some strategic partners.

This is Ravi Subramanian here. As far as the split of growth is concerned, given that we are governed by NHB, there are certain -- there's a certain mix that we have to maintain between HL and LAP to maintain our principal business criteria. And any origination that we do will actually be in line with that. We built a new team this quarter, and that's the reason why you see the origination of LAP going up slightly higher than normal. That is stabilized and home loan will stay in the 62% to 65% range for us going forward. As far as the capital position is concerned, I think statutorily we're required to be somewhere around 15% capital adequacy. We are still 7%, 7.5% away from that. And as a subsidiary of a large NBFC, I think we are in a reasonably strong position to capitalize as and when required. So at this point in time, I don't see too much of a stress on that point at all.

Okay. Understood. Then on the profitability, the ROA for the subsidiary was at 2.2%. Steady state, what is the ROA and ROE you're looking at, let's say, by the end of this year?

For the subsidiary, given the leverage is high, my ROA should be somewhere in the region of about 2.75% to 2.8% on a steady-state basis. And at the leverage levels that I am at right now, I think we would be -- for the full year FY '24, we would be somewhere around 15.5% in terms of an ROE because we're also investing heavily in growth. And as a result of that, we'll be at about 15.5% ROE. The benefits of this growth will actually come in FY '25.

Understood. Great. Congratulations again, and thanks for taking my question.

Next question is from the line of Raghav Garg from AMBIT Capital.

Sir, when I look at the overall auto portfolio of CV, passenger vehicles, construction equipment all of this cumulatively, but portfolio has grown by about 16%, and this is -- while it's good on a stand-alone basis. But when we compare to peers, the growth is lower. So what would be the reason why we've been lagging last year in terms of the overall growth as far as auto finance portfolio is concerned. Should I take up my other question right now or should we go one by one.

See, as far as the growth is concerned, please understand and appreciate that we are fairly large. If you add our commercial vehicle and passenger vehicle put together we are INR 132,000 crores. So our growth rate will be definitely cannot be compared with the smaller companies growth rate because of this sheer denominator. So overall increase in the AUM will be still one of the highest is what I believe.

Sure, sir. And sir, another thing which I wanted to ask is -- so you've been pointing out since a few quarters that the vehicle prices, especially in the used vehicle market has gone up quite a bit, maybe in the range of 15%, 20% even 25%. But then what I wanted to understand is that what is the growth in the number of vehicles that you would have financed in, say, Q1 or maybe even last year? Is there a growth in the number of vehicles financed by you?

Number of -- number wise, it is around 6% to 7% growth would be there. And rest is because of the value product.

And sir, my last question is, so one of the large NBFCs just yesterday highlighted some bit of question on the rural personal loans since you are present in that business segment or at least geographically, your presence is there. What is your sense about whether there's stress in the rural segment or not and the kind of leverage levels that they have and whether it is prudent to continue to lend to them and grow at the rate which we are growing in the personal loan segment. That will be all from my side.

Yes. This is Chakravarti. The entire personal loan book, you see that is there, is totally consists of our existing customers, right? Number one. Number two, majority of these customers are -- I mean, 100% of this customers are two-wheeler customers, where either they would have completed 75% of our existing 2-wheeler loan or and above, basically tenure would have been completed and we would have offered them a personal loan. Two things we must note here is that my -- our 2-wheeler portfolio, about close to 70% is semi-urban and rural, as you pointed out. And again, about 70% of them have no prior credit history. That is -- they have minus 1 score. So their ability to leverage outside is very limited. And we do offer them credit basing on their performance on their loan performance. So we are not too -- to be honest with you, I'm not worried about any stress on this portfolio. In fact, I'm very, very positive on this loan personal portfolio. We also make sure that the EMI for the customer does not cross -- the 2-wheeler EMI that he was paying us. So we do take precautions before lending. It's not just that it's a blind lending. And since they are all proven customer base, I don't find a reason to worry about this portfolio at all.

Sure, sir. What I see is that in the personal loan segment, the -- I think the gross stage-3 may have gone up a little bit. I think it was 5.53 in the last quarter gone up 5.6 and back to -- we've seen a decent amount of growth in this quarter. So -- but you're saying there's nothing really to worry about here.

Nothing to worry about.

Sure. Probably because it's a seasonal link quarter, that could be one explanation, right?

It keeps happening -- the small bumps happens, but it's not something that we really need to worry about the portfolio.

The next question is from the line of Bunty Chawla from IDBI.

Actually, I've joined late, so sorry for if I'm being repetitive. As you said, there has been a increase in the cost of fund by 7 bps. So how one should see this cost of fund moving in next 2 quarters? And respectively, what will be the impact on the margins and margin guidance, in fact, for the full year FY '24. And this was my first question.

Okay. For the cost is concerned, there could be some increase in the subsequent quarters. I don't expect any significant increase in cost. Margins, as indicated, we are looking at the asset mix and looking at a better net interest margin in subsequent quarters. So it will be able to pass on whatever additional cost will be there. So I don't expect any significant increase in the cost of liability.

So can we say 8.3% could be sustainable for next 2 quarters -- next 2 quarters?

Until and unless there is some market event, some regulatory changes, I don't expect cost to go up. It should be in the same lane.

Okay. Sir, my second question is, are you seeing any impact on the asset quality? [Indiscernible] about the rain, we have seen some flooding in few of the states. So any negative impact on the asset quality front because of that reason?

If you look at the monsoon season, every year, there will be some geography, which will be flooded and some geography where the rain is deficient. So both will be there. So if you average this out across, I don't see any reason to be alarmed at this stage. And the loss of property or the discomfort on transportation has not been seen anywhere. We have not got any report on such big excesses. So I don't really see any challenge. Some of the -- you would have seen some either video clipping or maybe news where larger cities like Delhi or maybe Hyderabad are flooded and that doesn't impact overall business or transportation.

The next question is from the line of Uday Pai from Investec.

I just wanted to -- disbursement...

Uday, please use the handset. Your voice is echoing.

Is it clear now?

Disbursement for the quarter is INR 30,454 crores.

The next question is from the line of Harsh from Flute Aura.

You have given us the guidance for cost-to-income ratio already and a steady state margin you would be maintaining around 27%, 28%. But when I see the breakup of other cost, the OpEx cost and the employee expenses, they are somewhat like fluctuating in every quarter. So can you also provide some guidance on these cost number?

So the current quarter, the employee costs have gone up by INR 100 crores [Indiscernible] INR 790 crores primarily because of the revision that we give for the employees. And there was rationalization of salary across both the companies at a certain level, and that has impacted the staff cost. And this will continue because it's a permanent increase and hence this trend should continue for the future also. And coming to the other point that you have raised regarding the other operating expenses, it is more or less similar to the previous quarter, except that previous quarter, we had taken in one time or rather hit of INR 302 crores on account of the impairment of intangibles, which was for the entire year. In current quarter, we have taken INR 75 crores, which is for a single quarter.

Okay, sir. And in terms of steady-state basis, going forward, as you mentioned, the cost would continue on this level. So what would be your expectation in terms of ROE? What percentage are we targeting?

The ROE should be anywhere between 15% to 16% for the entire year, yes, full year.

And then on mid-term basis, if you look at [indiscernible].

Sorry, you're not audible.

Can you please use the handset and come closer to the mike.

I was asking for midterm ROE, what targets are we looking at?

We are aiming at 16% ROE at the end of the year. We cannot -- midterm can't say. But that is a target we have kept ourselves.

The next question is from the line of Chandrasekhar Sridhar from Fidelity International.

There is a question for Mr. Chakravarti. So where are we adding all of these employees, the employee comp is up pretty substantially. Just maybe spend some time on that. And during the merger, we had announced that with the salary rationalization between SCUF and Shriram Transport was of INR 68 crores difference. I mean, from looking at the numbers now, it seems that just the salary rationalization looks to be a very large number. So maybe just if you could help me on that. And a couple of questions sir, Mr. Sunder, one is -- so the tax rate now sorted the issues. I mean, we work with like a 25% tax rate. And second is just from the annual report. All along the investment in subsidiary, which is largely in Shriram Housing was carried at about -- separately at INR 650 sort of odd crores, actually this quarter and in your published numbers, it's gone up to INR 1,500 crores investments in subsidiaries. So maybe just help me understand what's resulting in this increase in the investment in subsidiaries.

Yes. The investment in subsidiary, which has been quoted at 1,500 crores is all out of the fair valuation, which we had done at the time of merger. Hence, the INR 1,500 crores have been arrived. And coming to the staff cost, what we have earlier guided of around INR 60 crores, INR 65 crores. But this INR 100 crores hit also includes the normal increment to all the employees, which is done on a yearly basis. Added to that, the -- there has been an increase of around 2,000 odd employees in the previous quarter as well as in the current quarter, and that also has an impact on the staff cost. And the other question?

So all the employees are basically -- the rationalization all has happened in this quarter.

Along with the increment exercise, we did the rationalization exercise Chandra. These employees are getting added mostly in the erstwhile commercial vehicle branches, where we are introducing gold loans, two-wheeler loans and SME loans. So it's almost across the country, not specific to a geography.

My understanding was there are only under Shriram Transport branches, they are on the ground floor, so there was limited capability to add people for gold loan...

No, not 100. I mean, ground floor and first floor are okay. So we have added as of yesterday, we have added 498 commercial vehicle branches to gold loan.

So what's the total number of branches where you doing gold loan now?

So this is 498 of commercial vehicle and close to about -- should be around 1,500 -- 1,500 combined.

Sorry, on the tax rate?

Tax rate will continue at 25%.

The next question is from the line of Sameer Bhise from JM Financial.

Congrats on the good quarter. The LCR is around 200%. Is this a desirable level? Or how does it move going forward?

Okay. So regulatory requirement, what we're saying is rate is much lower. But since we always use to maintain higher liquidity, the LCR is looking at 200-odd percent. But the desirable level, I think, one, we'll continue to maintain that liquidity of 3 months repayment that we're not going to dilute, but based on the larger overall size, it can be in the region of 150 to 200, but it will be definitely be much, much above than the regulatory requirement of 100%.

Fair enough. That is helpful. Secondly, on this whole product-wise provisioning, would you want to keep a higher stage-3 coverage on the personal loan as a product? I see it is at 47% priority.

Yes. The provision is [Indiscernible] methodology. And we go based on whatever comes out based on the last 5 years' data. And as of now, it is at 47%, rightly said, because the other areas it is high, but we will bring it above 50% maybe in the next couple of quarters.

The next question is from the line of [Indiscernible] from Schonfeld.

Just coming back to cost of cost of fund. Clearly, we're seeing that going forward, expect some cost of funding increase and not material. So should we expect the quarterly cost of fund to be smaller than what we have seen this quarter? Or is there other way to understand it?

Yes. So we don't expect the cost of fund to go up. We should be able to maintain the cost of the book at the current level. That is what we are indicating. The incremental cost of fund is definitely not up. So that is the reason which gives us confidence that overall costs should not go up any further. But even if it's closer, it can be very, very marginal.

So our back book is entirely almost all priced already by now.

Yes. Correct.

The next question is from the line of Manuj Oberoi from Yes Securities.

Sir, just one question on value growth in vehicle finance, both in CV finance and vehicle and [Indiscernible] have seen significant value growth in the last 2 years. How much do you see revenue growth helping us in [indiscernible].

The value growth now will be a little lower year-on-year. So whatever increase was there because moving from BS IV to BS VI, there was a technology upgradation and value growth was there. And even this year, what happened is there was BS VI 2.0. That's some more increased emission norms that also helped the vehicle prices to go up by around 3%. So last 3 years, there is a continuous value growth and it may be slowing down from the next year. So therefore, the ticket hike may not be growing at the same level. But the number of vehicles probably will go up as we get into deeper pockets. So we should be able to overall maintain what has been given the guidance of 12% growth in the CV portfolio.

The next question is from the line of Punit from Macquarie.

Yes. I just wanted to confirm one thing. You said that your cost of funds was up 7 bps, and the yield declined 8 bps, if I'm right? Or what's the number to trend?

Yes, the cost of fund increased by 7 basis points and yields came down by 8 bps.

Next question is from Gaurav Sharma from HSBC Securities.

Yes. Sir, just a small data-keeping question. Can you please provide the segmental breakup of disbursement in quarter 1?

Okay. I'll give you offline You can contact [Mundra] he will help you out.

The next question is from the line of Amit Jain from Axis Capital.

Just wanted to know your thoughts on the MSME and the 2-wheeler segment. How was it growing? Any challenges you see in terms of asset quality or the pain is behind and how do you see the growth panning in these 2 segments, sir?

I don't see any worry about asset quality, in fact, honestly, I think we are seeing -- I mean, one of the best periods for me, actually one of the best periods of asset quality in both the segments. As far as business growth is concerned, 2-wheeler, we expect a growth of about -- the OEMs are expecting a growth up anywhere between 10% to 12%. So and if it grows at 10% to 12%, we assure that our portfolio will grow upwards of 15% plus. In fact after a long, long time, we have crossed the disbursement of more than 106,000 2-wheelers in the month of June. So it looks like good. There is also -- I mean, the known fact is that there is also fierce competition in the market. I mean, in the two-wheeler space. So let us see how it works. But we are confident on the growth of both MSME and 2-wheeler.

Thank you. Ladies and gentlemen, that would be our last question for today. I now hand the conference back to Mr. Umesh Revankar for closing comments. Thank you, and over to you, sir.

Thank you all for joining the call. As some of you -- and it's one of the good quarter, especially in the first quarter, which is a little challenging. It's a good quarter for us, and the indication of the growth is the integration for the full year. And as we discussed, we'll definitely work on improving the margins. And we will come out with better numbers coming quarters. Thank you. Good day.

Ladies and gentlemen, on behalf of Shriram Financial Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines. Thank you.