Shriram Finance Ltd Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Mahrukh Adajania - Nuvama Wealth and Investment Limited - Analyst : Hi. Good evening, and congratulations. Sir, my first question is on margins. It has already surpassed your guidance and it has stood steady for the last -- I mean, very strong for the last two quarters. And the growth in interest expenses is also on the lower side. So how do we take margins -- look at margins from here on? Now, I know that an increase in the liquidity cover was mentioned earlier. But just in terms of margins, what range of margins do we now look at? That's my first question.

Question: Mahrukh Adajania - Nuvama Wealth and Investment Limited - Analyst : Okay. So you can hold it here with changing mix, even though costs will rise? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 25, 2024 / 2:00PM, SHMF.NS - Q3 2024 Shriram Finance Ltd Earnings Call

Question: Mahrukh Adajania - Nuvama Wealth and Investment Limited - Analyst : Okay, okay, sir. Sir, my next question is on AUM. I mean, especially, outlook for CV growth. How it gets -- I mean, for you, especially for your CV financing, not so much for the sector, on how it could or if it at all, would be impacted in elections? And how do we look at it from like, say, a one-year perspective? Because the share of CVs has been coming down.

Question: Mahrukh Adajania - Nuvama Wealth and Investment Limited - Analyst : Even in FY25, what would be the overall AUM growth you would look at in FY25?

Question: Mahrukh Adajania - Nuvama Wealth and Investment Limited - Analyst : Okay, sir. Thank you.

Question: Vikram Raghavan - Moon Capital - Analyst : Thank you for giving me the opportunity, and congratulations on the results. Sorry, I joined late, so I might have missed it. I just have two questions. One is what is your disbursements for the quarter? And second, the guidance on credit costs?

Question: Vikram Raghavan - Moon Capital - Analyst : Thank you so much.

Question: Avinash Singh - Emkay Global Financial Services Ltd. - Analyst : Good evening. Thanks for the opportunity. My question is on credit cost. I recall you experienced some changes into the PD and LGD. So I mean, this quarter has seen increase in all your credit cost and you are still maintaining 2% guidance, so with product segment particularly has led to -- or rather, you are seeing your PD, LGD changing more. And despite this increase, you are still guiding for 2%. So I mean, where do you see that, okay, credit cost will moderate? And the second one again related would be on your personal loan segment, your overall estimates of PCR is 53% odd, whereas, I mean, in the personal loan that's largely unsecured and, of course, maintained in your book, you are still keeping it down 50% odd. So what is leading to not having a personal loan or PCR being lower than your overall PCR? Thanks.

Question: Avinash Singh - Emkay Global Financial Services Ltd. - Analyst : Okay. Thanks. One follow-up, if I may have, on Shriram Housing, your subsidiary. Also, the growth is pretty strong and particularly, on the co-lending DA side. So if you can help us understand, I mean, what -- or like who are your key partner on the bank? And also, I mean, there have been a report on your plan to divest this. So I mean, what's going on there?

Question: Avinash Singh - Emkay Global Financial Services Ltd. - Analyst : Okay. Thank you.

Question: Shweta Daptardar - Elara Capital (India) Private Limited - Analyst : Thank you, sir, for the opportunity. And congratulations on a good earnings set. Sir, I have two questions. If you could throw light on the write-off trends this quarter vis-a-vis previous quarter. And also, a bit on asset quality, I think you partially answered this in previous questions. So what is the asset mix in terms of across products or asset classes where in certain products would have put up benign asset quality trends and others would have been slightly -- some swings there, which is related to such market improvement in GNPAs and credit costs? Thank you.

Question: Shweta Daptardar - Elara Capital (India) Private Limited - Analyst : Okay. Sir, I'll squeeze in one more question. Does anything change on the goalpost on growth outlook now that you are 20%-plus? Thank you.

Question: Shweta Daptardar - Elara Capital (India) Private Limited - Analyst : Sure. Thank you, sir.

Question: Piran Engineer - CLSA India Private Limited - Analyst : Yeah, hi. Congrats on the quarter. Thanks for taking my question. Just one clarification. Did I hear the incremental borrowing (technical difficulty).

Question: Piran Engineer - CLSA India Private Limited - Analyst : Yeah. Am I audible now, operator?

Question: Piran Engineer - CLSA India Private Limited - Analyst : So (technical difficulty) REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 25, 2024 / 2:00PM, SHMF.NS - Q3 2024 Shriram Finance Ltd Earnings Call

Question: Piran Engineer - CLSA India Private Limited - Analyst : And up 25 bps QoQ, is it?

Question: Piran Engineer - CLSA India Private Limited - Analyst : So this is because of the risk-weighted guidelines? Or what has caused this jump?

Question: Piran Engineer - CLSA India Private Limited - Analyst : Okay. And sir, this ECB we raised, what would be the fully hedged cost?

Question: Piran Engineer - CLSA India Private Limited - Analyst : Understood, understood. And sir, secondly, on Shriram Housing Finance, I just wanted to understand our distribution is from all our 1,800-odd branches? Or what is the distribution for the HFC subsidiary?

Question: Piran Engineer - CLSA India Private Limited - Analyst : Okay, okay. Sir, because at this scale, we are at INR12,000 crores. And when we've looked at other affordable housing financials, we don't see players of this size growing at 60%, 70%. So I just wanted to understand what's giving us this edge on growth versus some of the other players that are actually listed? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 25, 2024 / 2:00PM, SHMF.NS - Q3 2024 Shriram Finance Ltd Earnings Call

Question: Piran Engineer - CLSA India Private Limited - Analyst : Okay. And how many employees do we have, sir, if you could just help me with that in the HFC subsidiary?

Question: Piran Engineer - CLSA India Private Limited - Analyst : Okay. This is useful, sir. Thank you. And wish you all the best.

Question: Kunal Shah - Citigroup Global Markets India Private Limited - Analyst : Yeah, hi. So the question was maybe when you look at all the segments like two-wheeler, MSME, as well as PL, no doubt that there is a substantial increase on a quarter-on-quarter basis in the AUM, which is showing relatively lower Stage 3. But otherwise, there is an absolute increase, which is there in the GNPA. And in fact, on the Stage 1 provisions out there, they have also increased CapEx, so we have raised it across most of these product segments. So looking at this too, how comfortable we would be in terms of sustaining such a strong growth in these three products here?

Question: Kunal Shah - Citigroup Global Markets India Private Limited - Analyst : In the Stage 1, if I have to look at it in terms of the percentage as well, going up from 3.06% to 3.11%. If I broadly look at the split in terms of the segments wherein the Stage 1 provision has gone up, it is largely MSME, two-wheeler, and PL, okay. Wherein, again, in each of these segments,

Question: Kunal Shah - Citigroup Global Markets India Private Limited - Analyst : Yes, sir. And two-wheeler, no doubt it's a mainstay. But if you look at the sequential momentum, again, like 16% quarter-on-quarter growth in AUM. So that's, again, quite strong, okay? So obviously, there would have been some increasingly market share and the positioning, but how was it coming on account of any synergies? So if you look at the growth in some of these segments, if you can highlight what is coming out of really the synergies post the merger?

Question: Kunal Shah - Citigroup Global Markets India Private Limited - Analyst : And lastly, slightly revised from the guidance earlier on the credit cost, we were at somewhere around 1.52% odd. Now, maybe this quarter also, credit cost continue to be 2.4% not coming off. And we are now saying that it will be like around about 2% odd. So any worries in any of these segment that we are seeing with this kind of a growth?

Question: Kunal Shah - Citigroup Global Markets India Private Limited - Analyst : Okay. Thanks, and all the best.

Question: Viral Shah - IIFL Securities Limited - Analyst : Hi. Thank you for giving me the opportunity. Congrats on a good set of results. So I have three or four questions. First is on the PL book. So you mentioned that this -- the provisioning on that is based on the historical track record. So is this just SCUF track record that you are referring to?

Question: Viral Shah - IIFL Securities Limited - Analyst : Okay. And is the incremental book that is being sourced in this segment, the customer profile of it, is it similar to what the SCUF customers were?

Question: Viral Shah - IIFL Securities Limited - Analyst : Right. Got it.

Question: Viral Shah - IIFL Securities Limited - Analyst : Okay. Fair enough. And the second is basically, if I look at the slippages trend, so that has been actually inching up. So in last quarter, it increased by 30 basis points. And in this quarter, it has again increased by now 45 basis points. So what is driving this? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 25, 2024 / 2:00PM, SHMF.NS - Q3 2024 Shriram Finance Ltd Earnings Call

Question: Viral Shah - IIFL Securities Limited - Analyst : On an overall basis, the net slippages.

Question: Viral Shah - IIFL Securities Limited - Analyst : Yes. So if you add back the write-off, right, then basically, the slippages number is inching up.

Question: Viral Shah - IIFL Securities Limited - Analyst : Okay. Fair enough. And basically, in terms of the growth driver, right? So now, primarily, we see that the growth for the SCUF segments is coming from the distribution -- expanded distribution that they are now enjoying. So how much more juice is left in terms of being able to, say, scale up these products in the Shriram Transport -- erstwhile Shriram Transport branches? And how much should we expect going ahead? Because these products are growing at 30%, 35%.

Question: Viral Shah - IIFL Securities Limited - Analyst : Okay. And if I have to say -- ask you to ascribe a number in terms of at what potential has this product reached from these new branches so as to just get a sense?

Question: Viral Shah - IIFL Securities Limited - Analyst : Yeah. Basically, for example, the gold branching -- gold loans from the branches, the 600 branches where you have already rolled it out. So in those 600 branches, what's the AUM, the gold loan AUM? And how do I -- how will it compare to your erstwhile SCUF gold loan AUM in the branches?

Question: Viral Shah - IIFL Securities Limited - Analyst : Fair enough. And lastly, on the status of the fintech partnerships on the PL and the MSME piece, if you can talk on that? What's the status, the progress?

Question: Viral Shah - IIFL Securities Limited - Analyst : Right. And sir, lastly, basically, in terms of the share of the personal loans. Last quarter, you had said that we'll probably be capping it at around 4.5%, 5%, so we have now reached 4.5%. So should we now expect that the growth going ahead will be in line with the overall loan book growth?

Question: Viral Shah - IIFL Securities Limited - Analyst : Below 6%? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 25, 2024 / 2:00PM, SHMF.NS - Q3 2024 Shriram Finance Ltd Earnings Call

Question: Viral Shah - IIFL Securities Limited - Analyst : Yeah. So you'll probably take this up to 6%?

Question: Viral Shah - IIFL Securities Limited - Analyst : Okay. Fair enough. And lastly, I would say, a bit of a data keeping question. So the cost of funds, you mentioned that it has sequentially gone up. But when I look at the reported or rather, sorry, the calculated funding cost, that is actually showing a 20 bps decline quarter on quarter. Is that the intra-quarter adjustment, the averaging effect?

Question: Viral Shah - IIFL Securities Limited - Analyst : Okay. Fair enough. Thank you. That's it from my end.

Question: Nilesh Jethani - Bank of India Investment Managers Pvt. Ltd. - Analyst : Okay. Am I audible?

Question: Nilesh Jethani - Bank of India Investment Managers Pvt. Ltd. - Analyst : Thank you. Thanks for the opportunity. My first question was in line with the previous participant only. So this 20% odd AUM growth. So I wanted to understand what you would attribute to branch expansion, cross-selling, et cetera, via the Shriram Transport branches? And what would be the actual growth, which you ascribe to this 20% pay? Second question is on the passenger vehicle growth. So growth seems to be higher for us. So what you would ascribe to pricing and volume? And how do you see this investor see this stage of high growth to continue over the next two to three year period? What is your sense on that? And third is on the credit cost. So directionally, as the share of SCUF product increases, do we attribute from a two- to three-year perspective? The credit cost can actually go up to 2.5% to 3%, which is normal for a two-wheeler and a personal loan business.

Question: Nilesh Jethani - Bank of India Investment Managers Pvt. Ltd. - Analyst : Got it. And the passenger vehicle piece, volume versus price growth which we are seeing, if any, you can attribute? And how to look at this growth

Question: Nilesh Jethani - Bank of India Investment Managers Pvt. Ltd. - Analyst : Got it. And then, one last question, if I can squeeze in. Our branch count from 2,900 have only increased to 3,137. So wanted to understand what is our strategy? So maybe this year or next year, are we focusing on cross selling, and probably, start on the branch expansion from a year or two later? So what's the thought process of the branch expansion?

Question: Nilesh Jethani - Bank of India Investment Managers Pvt. Ltd. - Analyst : Okay. Got it, got it.

Question: Chandrasekhar Sridhar - Fidelity International Ltd. - Analyst : Hi. Thanks. I had a few questions. One, could you just remind us maybe, how large is the used-bus segment? That's one. Then maybe, how large is our fleet operators within this segment? And what is the average ticket size right now on the passenger vehicle? Thanks.

Question: Chandrasekhar Sridhar - Fidelity International Ltd. - Analyst : Umesh, sorry, I meant school buses?

Question: Chandrasekhar Sridhar - Fidelity International Ltd. - Analyst : So is it delta coming in from people upgrading their fleets or like the fleet operators, Ubers and Olas upgrading their fleets. Because, I mean, my understanding is that the entire used PV segment is like a INR100,000 crores market size, and our book is already INR35,000 crores over here. So I was just trying to get some sense around the market sizes. And then, just how large we are related to that?

Question: Chandrasekhar Sridhar - Fidelity International Ltd. - Analyst : Is it safe to say that the average ticket size here will be about INR150,000 approximately?

Question: Chandrasekhar Sridhar - Fidelity International Ltd. - Analyst : Okay. INR300,000.

Question: Chandrasekhar Sridhar - Fidelity International Ltd. - Analyst : Okay. Got it. Got it. On the MSME segment, are there any changes in the ticket sizes or tenures which we have done? I mean, we used to have INR8 lakhs to INR10 lakhs it came down to INR6 lakhs to INR8 lakhs, is it going up towards INR8 lakhs to INR10 lakhs again?

Question: Chandrasekhar Sridhar - Fidelity International Ltd. - Analyst : Right. Right. And sorry, the last question, maybe if you could just help us. There was 100 bps of capital consumption in the quarter, the tier one down to 20. So maybe just help me understand where did 100 bps get consumed within one quarter itself? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 25, 2024 / 2:00PM, SHMF.NS - Q3 2024 Shriram Finance Ltd Earnings Call

Question: Chandrasekhar Sridhar - Fidelity International Ltd. - Analyst : Right. Okay. Got it. Okay. Thanks.

Question: Abhijit Tibrewal - Motilal Oswal Financial Services Ltd. - Analyst : Hi, yeah. Good evening, everyone. And sir, congratulations on a good quarter. First thing's first, I mean, more of a data keeping question. If you can provide, product-wise, split of your disbursements?

Question: Abhijit Tibrewal - Motilal Oswal Financial Services Ltd. - Analyst : This is useful. Thank you. Sir, the second question I had was on the liabilities. Obviously, I mean, there were multiple questions on where the cost of borrowings have moved up, the incremental cost of borrowings. Sir, I wanted to understand, I mean, the impacts from this RBI risk weight circular where it has increased risk weight on bank loans to NBFCs. Is that impact already there in our cost of borrowings? Or do you think that large part of our borrowings are our PSL, and they will not be impacted by the increase in this circular? Probably, what I'm trying to understand is, I mean, how are the banks posturing on the liability side? And the other thing is from what I understand, given the deficit liquidity in the system, short-term rates have actually spiked up. So I mean, is it not really having any impact on the cost of borrowings? Or will it not have any impact on your cost of borrowing? Because somewhere, I remember hearing that we are saying that we don't expect cost of borrowings to go up further.

Question: Abhijit Tibrewal - Motilal Oswal Financial Services Ltd. - Analyst : Okay, sir. This is I think very useful. And my last question was, again, circling back to Shriram Housing. While I understand you have already partly answered, that we'll be looking for capital infusion in your housing subsidiary. Sir, from what I recall earlier, the discourse used to be that we will maybe look to get an external investor in the housing subsidiary for maybe a primary equity infusion. I mean, what recent media articles are suggesting that -- and you yourself acknowledged that you are looking at various options. Some media articles have even gone to the extent of stating that you are even looking at completely selling down the HFC subsidiary rather than, I mean, bring an IPO of the subsidiary at some point in time. So if you could just briefly elaborate on that.

Question: Abhijit Tibrewal - Motilal Oswal Financial Services Ltd. - Analyst : Got it, sir. This is all I have. Thank you, and all the very best to you and the team.