Shriram Finance Limited (511218) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Shriram Finance Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Umesh Revankar, Executive Vice Chairman, Shriram Finance Limited. Thank you, and over to you, sir.

Thank you. Good evening, friends from India and Asia, and a warm welcome to everyone joining us from western part of the world. I'm excited to share our Q1 FY '27 earnings call with you today. I'm joined by our Managing Director and CEO, Parag Sharma. Joint Managing Director and CFO, Sunder; and Mr. Sanjay Kumar Mundra, our Executive Director and Investor Relations Head. Looking back, the first quarter of the year has been positive one for Shriram Finance, especially given the current situation. Let us start by examining some broad economic indicators that affect our business directly or indirectly. India's economy wrapped up FY '25-'26 on a strong note with the digital growth picking up to 7.8% in the fourth quarter, which was a comfortable beat to the market expectation of 7.3% for the growth trajectory and revised full year real digit growth rate of 7.7% with updated base year. However, RD has lowered its economic growth forecast for FY '27 to 6.6%. This adjustment comes as they are concerned about global conflicts, energy prices and weather condition. India's retail inflation has increased to 4.38% in June, up from 3.93% in May. This rise is mainly due to higher fuel and food prices, which have increased because of supply disruption driven by war in Middle East and delaying seasonal rates. India's wholesale price based in inflation jumped to record 9.87% in June, up from 9.68% in May. Fuel and power prices went up a lot, which really pushed this number higher. Food inflation also is an 18-month high, which affected overall index. Coming to the recent RBI policy, they are main points from June '26 RB monitor policy. Repo-rate stays at 5.25%. Policy staff remains neutral, the forecast has been adjusted to 6.6% from earlier 6.9%. CPI inflation forecast has been raised to 5.1%, up from 4.6%. Coming to the rural economies. The biggest challenge for India's economy right now are geopolitical tension in West Asia and uneven rainfall from Southwest monsoon, a big monsoon depreciate a changing monsoon part, inconsistent rainfall could cause problems for agriculture, inflation and overall spending. The IMD recently lowered its forecast for 2026 Southwest monsoon, predicting only 90% of usual rainfall. This is happening as El Nino gets stronger, which might lead to even more rainfall problems during important planting season. The latest metrological department data shows India -- southwest monsoon is in a long dry spell with the total seasonal rainfall, now 24% below normal between June 4 to July 16. But the good news is that the country has made some changes, like more irrigation, different ways for people to earn money in the countryside, which makes the whole economy stronger when it rains unpredictably compared to the past. Coming to the GST collection, India's GST collection went up by 13.9% year-on-year to INR 1.95 lakh crore in June '26 compared to INR 1.71 lakh in same month last year. This increase was mainly because of more money coming in for both domestic and imported goods. If you look at the whole April-June period of FY '27, last GST collection, where INR 6.3 lakh crore, which is 8.4% increase from INR 1.83 lakh crore collected in the same period last year. Coming to the auto industry. On OEM sales side, this quarter has been very good for automobile sector following GST rate cut. It has -- it had a positive impact, leading to significant surging sales. Commercial vehicle sales increased by 14.1% in Q1 FY '27 and stands at 2.6 lakh unit as against 2.24 lakh in Q1 '26. Within CV, M&HCV grew at 18.3% and stands at 95,910 units against 84,040 units sold in the Q1 '26. HCV sales recorded growth of 20.8% in Q1 FY '27 and stands at 1.69 lakh unit versus 1.4 lakh units sold in the Q1 '26. Passenger vehicle sales in Q1 '27 recorded a growth of 25.9% and stands at 12.74 lakh unit as against 10.12 lakh units in Q1 '26. Two-wheeler reported growth of 20.3% with sales of 56.29 lakh unit in Q1 as against 46.78 lakh unit. Freewheeler sales recorded a book of 29.7% in Q1 FY '27 with sales of 2.14 lakh unit sold versus 1.65 lakh units sold in Q1 '26. Tractor sales recorded a growth of 21.6% with 2.65 lakh units sold against 2.18 lakh units sold in Q1 '26. Construction equipment recorded a growth of 8.8% with 25,017 units being sold against [ 23.17 ] units and showing growth after a long -- or negative growth in the last financial year. One highlight is the EV sales have gone up significantly, maybe due to the uncertainty about the fuel price, but very positive that the PV sales, passenger vehicle sales increased by 94.8% to 84,665 units against 43,464 units sold in Q1 '26. Three-wheeler sales for Q1 increased by 13.2% to 2.15 lakh units against 1.9 lakh units sold same period last year. Two-wheelers, sales for Q1 '27 increased by 69.3% to 5.22 lakh units against 3.08 lakh units sold in Q1 '26. Now I shall ask my colleague, Parag Sharma, to take to the operational performance.

Thank you. Welcome, everyone to our Q1 FY '27 earning calls, and I trust you had the opportunity to produce our results and the related investor presentation, which has been posted on the website of stock exchanges. We just had a disbursement growth of 19.51% Y-o-Y, our disbursement in Q1 FY '27 this year aggregated INR 49,974.49 crores versus INR 41,816.75 crores Q1 FY '26. Our asset under management as on 30th June 2026, registered a growth of 15.6% over Q1 FY '26, and of 3.81% sequentially. Our assets under management stood at INR 13,798.39 crores as against INR [ 249.01 ] crores a year ago and INR 32,273.75 crores in Q4 FY '26. Our net interest income in Q1 FY '27 registered a growth of 33.67% Y-o-Y. We earned a net interest income of INR 8,055.70 crores in Q1 FY '27 this year as compared to INR 6,026.43 crores in Q1 FY '26. Our profit after tax grew by 59.79% and stands at INR 3,444.56 crores in Q1 FY '27, as again to INR 2,155.73 crores in Q1 FY '26. The profit after tax was INR 3,013.57 crores in Q4 FY '26. Our net interest margin in Q1 FY '27 was 9.04% as against 8.11% in Q1 FY '26, and 8.61% in Q4 FY '26. Our earnings per share for the quarter stood at INR 14.83 as against INR 11.46 in Q1 FY '26. On asset quality, gross Stage 3 in Q1 FY '27 stood at 4.64% and net Stage 3 at 2.33% as against 4.53% gross and 2.57% net in Q1 FY '26 and was 4.58% growth and 2.33% net in Q4 FY '26. Our credit cost to total asset for Q1 FY '27 stood at 1.66% as against 1.64% for Q1 FY '26 and 1.68% for Q4 FY '26. Our cost-to-income ratio was 25.48% in Q1 FY '27 as against 29.29% in FY '26. The same was 25.3% in Q4 FY '26. On the liability side, this quarter, we didn't borrow much and overall liabilities have come down from INR 250,690 crores as of March to INR 232,639 crores because of use of capital in the current quarter, which was infused in April 2026. The overall liabilities have come down. The cost of liability has also come down from 8.59% to 8.56%, a 3 basis point reduction. The incremental cost is at 7.77%. The liquidity coverage ratio for the company was flat [ 42.54% ] and liquidity is well maintained for 6 months of liability repayment. The average ratio came down because of this large capital infusion is at 2.14x versus 3.82x as of March. The capital adequacy ratio for the company was healthy at 34.17%, and I think with this, we can open the forum for question and answers.

[Operator Instructions] Your first question comes from the line of Renish Bhuva with ICICI.

Congrats on a good set of numbers. Just two things, sir. First on this AUM mix, right, so from a perspective, how do you see the share of new retail financing shaping up in [indiscernible] financing portfolio? And what is the current risk interested yield in this segment? I mean, it is better than the book we can sustain or at par or maybe slightly lower? And also if you can share how internally you estimate the return metrics for new vehicle. I wanted to get a sense at product level on the new vehicle finance book, are we in a [ finishing] basis, will be upwards of 15% or if it will be slightly lower.

Yes. See, we are slowly increasing our new vehicle disbursement focusing on existing customer upgrading, and see our existing customers keep upgrading to new vehicle, and the rest of the common, everyone had the aspiration to upgrade to new vehicle, and we have been financing them. Plus we are also reaching out to the -- our earlier customer, Shriram been in this business for nearly 50 years. Many of our customers would have gone to the other players because we were not matching the interest rate in the past. Today, since we have capital and since our cost of borrowing is coming down, we are able to match the rates. So not only we match the rate, we are also able to service the customer much better, so we are increasing our new vehicle portfolio. Right now on the disbursement basis, it is around 16% of the disbursement is a new vehicle. And increasingly, it will go up the next 2 to 3 years as we reach out to more number of our earlier customers.

And sir, any comment on the profitability -- in the new...

Profitability, since we are passing on the reduced cost of borrowing to the customer. Overall margins will not come down. So our long-term margins of 8.5%, we will be able to manage.

And sir, second on the growth side, right? So while we were a little cautious during our Q4 because of [indiscernible] and then we were not making a guiding for higher numbers. But you did better, maybe mark better, [indiscernible] every quarter, the volumes are better, so are we aspiring for 18% to 20% growth in this year itself? Or we may want to see, wait for after the quarter and then wait for the guidance.

We would like to wait for another quarter because the net impact of the deficit in monsoon is less norm, so we would like to wait for that. But we are confident that we'll be able to grow more than 15% at least for next quarter. Then onwards, if things are much better, we feel that we'll be able to catch up and grow faster.

Got it. Got it. So can you just share the full year guidance on growth for this at this point in time?

Our earlier guidance of 18% is hold good, unless after second quarter, we revised it.

Your next question comes from the line of Chintan with Autonomous.

The first one is on asset quality. What kind of impacts are you currently seeing from the [indiscernible]. Are you seeing capacity utilization come down? Are you seeing signs of demand destruction? Like what signs are you currently seeing on the ground?

See, basically, we were expecting that fuel price to go up steeply, but since the fuel price has not gone up steeply, the operating margin for the operators have not changed much. They're able to pass on the increase in cost to the shipper, the end customer, so that has not changed much. And the demand for the vehicle remains good because we have not seen any stress or vehicle idling anywhere, and there has been good demand for the vehicle. . And that's reflected in the way the sales have gone. If the utilization levels were a little lower, then sales would not have gone up by 20% year-on-year, which is actually a positive surprise to us.

So it's holding up well this time. Okay. The second question is on margins. So our NIMs were 9% this quarter. How should we think about your NIM over the next 3, 4 quarters? And how should we think about the excess liquidity that you have on your balance sheet? So I'm kind of thinking about the next few quarters here. Rather than long term with the new vehicle finance, like let's give that aside, just kind of trying to think about how you balance sheet develops over the next 3, 4 quarters?

Immediate 2 quarters, I think the current NIM will hold good because we are still utilizing the capital factor. Over the medium term, definitely, it will come down a little because our new vehicle mix will go up, and right now, whatever the benefit we are getting of because of the lower cost of borrowing, to some extent, we are passing on to the new vehicle purchases. So I believe the -- as a new vehicle portfolio keep increasing within the quarters, we'll be able to manage the NIM at around 8.5% in the medium term.

I mean this is where as a problem with your guidance. Like I don't understand this 8.5% number. You're currently at 9%, you've got excess liquidity on balance sheet. So that will probably go a little bit higher. And the mix shift, the way you're guiding on new vehicle loans, the mix is moving very slowly. So how does the NIM then drop from, say, 9.1%, 9.2% back to 8.5%. That just seems very conservative. Is it fair that you're just being conservative in this guidance?

Yes, I'm talking about a medium term. Medium term is 2 to 3 years. And in the short term, I said...

A fair number, unless the new vehicle book grows very fast, it's hard to see that much mix shift come through and then see 8.5% NIM again. So either your growth will really go fast, which you are not guiding to, you're guiding to more balanced growth, the mix shift, it would be more like 5 years rather than 2 to 3 years? Or am I -- but I can understand if you're being conservative.

See, we have been conservative in our guidance, but we will, if you look at the mix from 10% is our new vehicle volume, we have increased to around 16%, 17% now. And it will keep increasing to around 20% to 25% over the period. So definitely, it will be around 30% of our book, 30-plus in our book, maybe in the medium term.

Understood. Okay. And then finally, on the nonvehicle portfolios on asset quality. Could you give us some sense what's happening in MSME gold, these areas, we are seeing GS3 inch up a little bit. Can you provide some color on what's happening there?

Yes. Our gold portfolio is definitely growing very fast, and we expect it to grow very large because we have started using many of our existing branches for gold loan. And currently, around 2,200 branches are made ready for gold loan activity, so we expect the portfolio to grow double in the next 3 years from around 2.5% of the overall book to around 5% because we feel that there's a very big opportunity for us to grow in the gold. And MSME book also, we have been traditionally lending in the southern market. Other markets we have not really explored much, and since we have no branch network across the country, we will be able to grow our MSME book. And last year, we were cautious because of the U.S. tariff and we -- the inconsistencies in the policy, which the mean of the MSME were dependent on exports. Now since there is the MSME, by and large, are able to find new market and expand the market within India, we are confident of the growth in the MSME book. So from around 15% of the portfolio, the MSME will become around 20% of the book. Personal, we also, we would like to extend to other customers, we were focusing only on two other customers, now we will be offering this to other customers like gold, MSME customers also. So the personal loan book also will keep growing. But we try to, as much as possible, keep it within our non-customers, and we do not wish to make the outsourcing as a big way to move forward in the personal loan

And there is no worry about asset quality in gold and MSME at the moment, right? Because the...

Gold, absolutely not. MSME, we have been cautious in the last 1 year -- we are now pretty confident about the MSME quality as for it. .

And a final quick one. Any guidance on OpEx because your revenues are now growing stronger because of the excess capital. Should we think about the stable cost income ratio? Or should we think about an improving cost income ratio?

Stable, I should say.

The next question comes from the line of Kunal Shah with Citi Group.

Yes. So firstly, Again, coming on to this entire deployment of liquidity question, so if you look at it, the money was utilized in terms of repaying the borrowings, borrowings are down, and then there is some liquidity which is parked in the cash bank balances and the investments. So here all, do we assume that maybe now the repayment of the borrowing is largely done, we will not utilize the funds on this liquidity to repay the borrowings and it will be more utilized towards the growth? And how long would it take to utilize this entire excess liquidity out there, which is currently [indiscernible]

Yes. I think whatever liability repayment we targeted we have achieved. So we'll be looking at business growth only. The utilization towards more of growth only. And we previously also used to maintain slightly higher liquidity which will be close to around 3 months of our future liability repayment, which works out to close to around INR 17,000 crores to INR 18,000 crores. the balance, what we have surplus of that will definitely come down because of higher disbursement. And we don't look at any utilization towards liability repayment. In fact, we'll be looking at mobilization towards the end of the quarter of on mobilization also. Yes, what you're saying is right, no more liability repayment, more of growth and look at some mobilization towards the end of the quarter.

Got it. So as this liquidity gets utilized into the growth, in fact, that should support the margins in the near term and that's the reason you are confident that it will remain in this trajectory for a few quarters.

Correct.

Okay. Got it. And secondly, in terms of the credit cost, given that it's holding on quite well and you indicated that there is no stress reflected in any of the segments. Do we stay with the credit cost guidance or would there be any risk to whatever we are indicating. We are still hitting below our guidance of 2%. So any changes out there on the credit cost front?

Yes, I think it will hold good, but our -- see, our guidance has been around 2%, so it will remain around that in the near term or even in the medium term.

Okay. So no risk out there? Okay. And MSME, we have started to see the inflection, maybe it has started to grow quarter-on-quarter. So as you are indicating the MSME proportion will also -- should we see the accelerated pace in SME growth and getting towards the double-digit kind of a number on a year-on-year basis now? Or would it still take some time before we get the comfort on the overall environment?

No, I think it will start growing now. We're pretty comfortable and confident, and we would like to expand the market.

Sequential momentum on MSME will pick up?

Yes.

Okay. Got it. And just last question in terms of the data point breakup of disbursements, yes.

PV for the current quarter was INR 19,556 crores. Passenger vehicle, INR 11,018 crores. Construction equipment, INR 792 crores, farm equipment INR 947 crores, MSME INR 6,184 crores. Two-wheelers, INR 3,548 crores. Gold, INR 5,153 crores. Personal loans, INR 2,773 crores. Totaled INR 49,974 crores. .

Your next question comes from the line of Adarsh with PP Capital.

Yes. So I want to ask a question regarding the goal, as you know that our Prime Minister has requested our citizens to buy less gold.. So how this is going to affect the businesses for Shriram. And overall, I want to understand like in the Middle East crisis and all, how this is going to affect the business of Shriram Finance.

Basically, gold, against the existing jewelry it is not against the buying of the gold. And gold traditionally is not used for raising resources or borrowing. People have been hesitant to partner with the gold, and thanks to some of the NBFCs who specialized in gold, they have highlighted the advantages of raising resource against gold at a lower cost. So people who were otherwise would have raised personal loan or hand loan, now they are raising against gold for all their requirements. So I believe the gold holding in India is pretty large, so it will keep increasing. And also, there is a large number of pawn brokers who are still in the business, and they're doing pretty good. So I think some of this business will flow into NBFCs. So in that way, I think it will turn out to be a good volume for everyone who is there in this business. West Asia crisis, even though there were certain challenges, especially in certain industry, which was dependent on the petroleum product as their raw materials like plastic and all, so there the cost went up, and there were some challenges for the manufacturers to pass it on to the end customers. But I think that phase is over now. So onetime increase in cost is already passed down, and people have started living with it. And therefore, I think there may not be further surprise unless the retail fuel price goes up further. And the government also have taken a lot of measures in managing this by the higher ethanol mix. E20 is going to be a [indiscernible] now, and that is going to have, to some extent, less dependent on the import. So I think, overall, I feel the situation is quite comfortable. And the economy is doing quite well and growing at -- the indicated level of what RBI has indicated or forecasted at 6.6%. And I believe that the economy is growing steady.

Thank you very much and congratulations for the good set of numbers.

Your next question comes from the line of Raghav Garg with Ambit Capital.

I just have 2 questions. Most of my questions have been answered. One, I know you said that your incremental cost of funds is [ 7.77 ]. I just wanted to know what is the incremental cost of bank funds, if you can share that

Yes. So we are not borrowed from banks in the current quarter. But when we start borrowing, I think it will be in the range of around 8%.

Around 8% Okay. And the second question is on your MSME portfolio, so I think at the time of the merger, the portfolio, mostly expanded portfolio across the [indiscernible] branches in the non-south state and region. As of today, where are you -- has the product being rolled out across all those branches that you were targeting? Or there's still some more penetration to go there? That's the second question.

No, I think it's a long way to go. There are a lot of scope and opportunity from the -- we were initially were mostly in the South. Now in the West, we have rolled it out. We need to grow more in the North and East, which we are looking at scaling up, so we are also trying to have more specialized people in these areas. So as we are able to get more specialized and experienced people we should be able to grow that business across India.

Can you share some numbers maybe in terms of your percentage of branches covered? What would be right now in the West? And then as you go into not -- that will help us get some idea on what is the opportunity out there.

Not all branches, we were doing -- even in the South, we were not using all branches for sourcing for the MSEM. We were focusing on the certain pockets where the MSME segment is pretty large. And other branches is mostly lending to small shopkeepers or trading activity. So the manufacturing MSME and all are mostly focused in the, what we call industrialized bed. So there, we need to build certain manpower, especially when you go to north and all so not central. So that is where we need to build a business. But we are covering most of these done part now. If not from all branches, we are sourcing from all branches but processing in the few branches. This is our branch growth, in as far as MSME goes.

The next question comes from the line of Rajiv Mehta with Yes Securities.

Congratulations on good numbers. My first question is on this very resilient CV growth that we are seeing even in Q1. So preset largely reflecting that the demand underground has kind of stood up when despite the movement in the [indiscernible] and not so -- if the full pass on did not happen also in the quarter, but the demand for [indiscernible] healthy in your cohort or your vintage segment? Or is it also a reflection of some decline in competitive intensity, which [indiscernible] or did we use some flexibility in underwriting or pricing? Because our cost of funds is now moving down. Can you just elaborate on what have been some granular drivers of growth in UC in this quarter?

If you look at the broad numbers, it's in line with the increase in sales itself. The CV sales have gone up by nearly 20%, both M&HCV and LCV put together. So naturally, any player in this market will grow by 20%, very comfortably because market is growing at 20%. Even in used vehicle, the demand is quite good from the rural market. So I think it's a very comfortable journey. We have not really made extra push for growing the CV. But yes, we have been doing more new vehicle, so naturally, our growth rate will be higher because the ticket size of new vehicles are pretty large.