Shriram Finance Ltd Q3 2025 Earnings Call Transcript

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

Question: Chintan Joshi - Autonomous Research - Analyst : Can I start with a few questions on NII? NIMs have come down this quarter. I can see that you've had an increase in ECB loans and borrowings and there's an increase in cash balance. So could you give us some sense of yields on these so that we can kind of think about how much of this might reverse in the next quarter as you deploy that cash? And then also if I can understand on securitization, which is up 14% quarter on quarter, what are the P&L effects of this? It will depress (inaudible) but increase the other income. Just trying to understand what the impact of that securitization is. Thank you. Unidentified Company Representative The NIM, it has been mainly because of the negative carry that has happened because we are carrying liquidity. So once as I was mentioning in the previous thing, once it normalizes back to the earlier levels of INR17,000 crores, INR18,000 crores. So it should come back to normal. And when it comes to the income book on securitization in NVO, since we follow the Indias norms, even though we securitize, the income over a period of time and only the attainment income is booked upfront and that is a small company. 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 24, 2025 / 1:30PM, SHMF.NS - Q3 2025 Shriram Finance Ltd Earnings Call

Question: Chintan Joshi - Autonomous Research - Analyst : So that would still imply like a 6 basis points underlying NIM deterioration in the quarter. So what is driving kind of that incremental apart from the excess liquidity? Are there other drivers of the NIM deterioration or is that rounding error? And we should expect that much volatility?

Question: Chintan Joshi - Autonomous Research - Analyst : Okay, excellent. And then I have one other area to ask about on kind of asset quality. So we've seen values of vehicles, commercial vehicles, passenger vehicles. Generally, vehicle valuations have gone up in the last few years. Does that mean that for you or the industry that LTVs have gone up or there have been higher disposals against the higher valuations? Or do you kind of look at it on historical valuations? I just want to understand your practices, industry practice practices, given that we've had this increase in valuations.

Question: Chintan Joshi - Autonomous Research - Analyst : Yeah. So we have seen an increase in the prices of CVs, passenger vehicles. Generally, all vehicle prices have gone up post COVID. Are you dispersing more loans against that higher valuation?

Question: Chintan Joshi - Autonomous Research - Analyst : But the LTV, thresholds have not been increased because of the increasing valuations. You are basically keeping your LTV? 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 24, 2025 / 1:30PM, SHMF.NS - Q3 2025 Shriram Finance Ltd Earnings Call

Question: Chintan Joshi - Autonomous Research - Analyst : Thank you.

Question: Raghav Garg - Ambit Capital - Analyst : Good evening and thanks for the opportunity. Just too hard on this again to what level would you bring back the liquidity? So when I look at the cash and investments, that percentage of assets, it's been increasing for the last couple of quarters and seems more in line with historical trends that you've had. So if you can guide to a number as to how much can it come down, will it be a significant number?

Question: Raghav Garg - Ambit Capital - Analyst : Understood. My next question is with respect to asset quality. So you know what I in the commercial vehicle segment is that the quarter increase in stage three assets is pretty significant. It's about 5%, 6% compared to the 100 that you had in previous quarters, about 1% to 2%. Why is it that the increase has been so sharp in this quarter? Any specific reason that you can point to?

Question: Raghav Garg - Ambit Capital - Analyst : Understood, sir. Another question with respect to asset quality only, especially in the MSME there. Also when I look at the quarter increase in stage two or stage three assets, that's about 10% to 12% and it's been fairly high. It was fairly high even in last quarter. Whereas the incremental addition to the overall portfolio seems to be coming down I'm talking about the MSME portfolio again. What is happening? Why are we seeing such high forward flows in the MSME book?

Question: Raghav Garg - Ambit Capital - Analyst : Do I have time for one more question? One last question.

Question: Raghav Garg - Ambit Capital - Analyst : Sir, if you can just comment, we've been hearing from a lot of other lenders that have reported earnings so far that there is some pain in the commercial vehicle segment. Some have cited that probably there is some less spending on infra by the government, something that you also alluded to. MC companies have stated that the consumption continues to moderate. So in light of these two trends, how do you see the operator profitability of fleet utilization? I know you put out some data in your monthly bulletin, but just some qualitative commentary from your side in terms of how you know the operator profitability is doing right now will really help. Thanks and that's all from my side.

Question: Raghav Garg - Ambit Capital - Analyst : And sir, one last question. How much of your business fee would be coming from or how many of your customers would have deployed vehicles in Karnataka mines? What would be your exposure to --?

Question: Raghav Garg - Ambit Capital - Analyst : Understood. Thanks a lot, sir. Thank you.

Question: Aditi Nawal - RSPN Ventures - Analyst : Yeah. Hi, sir. Thanks for taking my question. So I have two questions. One is more of a data keeping question. Have you called out the even the cost of borrowing for the quarter? And second, I'll ask once you answer the first question.

Question: Aditi Nawal - RSPN Ventures - Analyst : (inaudible) Unidentified Company Representative It is in the same range as the previous quarter. 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 24, 2025 / 1:30PM, SHMF.NS - Q3 2025 Shriram Finance Ltd Earnings Call

Question: Aditi Nawal - RSPN Ventures - Analyst : Got it. But any new product that we are trying to enter into anything that we are sort of going to go aggressively in terms of the product and --?

Question: Aditi Nawal - RSPN Ventures - Analyst : So any what is the outstanding book of the Green Financing or the make a difference?

Question: Aditi Nawal - RSPN Ventures - Analyst : Thank you so much.

Question: Kunal Shah - Citigroup - Analyst : Yeah, thanks and congratulations. So firstly, may be quite a contradictory remark coming in from the industry participants with respect to the fleet utilization and the operators cash flow. So no doubt you alluded to the fact that maybe it's sustaining. But even when we look at your bullet over the past couple of months, it's clearly indicated that fleet utilization has remained subdued. In fact, even in some of the major routes, truck rentals rise have not been that high and not much of an increase year-to-date. So how is this entire operators cash flow getting managed and maybe at least in terms of the delinquency levels, we are seeing it holding up pretty well.

Question: Kunal Shah - Citigroup - Analyst : Yeah, absolutely. But any segment where you would be worried about in terms of either where the operations are or maybe particularly with respect to our customer segment? Any segment be it in terms of first time users, small fleet operators or even in terms of with respect to utilization construction side, anything that would worry you?

Question: Kunal Shah - Citigroup - Analyst : And you would be confident on the overall credit cost guidance? 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 24, 2025 / 1:30PM, SHMF.NS - Q3 2025 Shriram Finance Ltd Earnings Call

Question: Kunal Shah - Citigroup - Analyst : Sure. And lastly in terms of MSME, so on a growing book again, I think last time you also highlighted that obviously it's being rolled out across most of the branches and that is leading to the growth and most of the deployment is also towards the service and the trading industry so that it's not posing a lot of worry. But we still look at it on a growing book of more than 50%-odd GS 2, GS 3 is almost 12%. So if you look at the log book, then it seems to be slightly higher. So any concerns out there on the MSME side or maybe the unsecured business side?

Question: Kunal Shah - Citigroup - Analyst : Sure. Okay. And lastly, just data points on [PDLG] and disbursement breakup? Unidentified Company Representative Yeah, a lot and give you that. The PD was [9.05] as against 9.06 in the previous quarter. Stage 2 PD was [20.74] as against 20.98 and the LGV was 38.75 as against 38.59. And the disbursement, you can be in touch with Sanjay. He will help you.

Question: Saurabh Kumar - JP Morgan - Analyst : Sir, just one question. On your OpEx, should we assume this level of cost to remain or just go for operating leverage in the next year? Thank you. 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 24, 2025 / 1:30PM, SHMF.NS - Q3 2025 Shriram Finance Ltd Earnings Call

Question: Saurabh Kumar - JP Morgan - Analyst : Like in terms of like YoY? Should it be higher than a year on growth or lower?

Question: Saurabh Kumar - JP Morgan - Analyst : So the cost of income, basically there's a rate that you could basically benefit a bit from on your margins. So I just want to know just absolute cost growth. How should we think about it? Is it linked to how your assets grow or should it be slightly lower? Unidentified Company Representative Slightly lower than the asset growth.

Question: Rajiv Mehta - YES Securities - Analyst : Yeah. Hi, good evening. This degrowth in volume book while you explain something before. But is it also related to any change of practices on the ground in the business? I mean, because in the very same quarter, the regulator had also highlighted a few things for the industry, which warranted correction. So is this degrowth related to any operational adjustment being done in the model or in the practices?

Question: Rajiv Mehta - YES Securities - Analyst : Got it, got it. And so on the personal loan, the book was already growing in the preceding three quarters and in this quarter, again, there is some growth while also in this quarter, we have seen some material increasing stage also. So is there any change of approach here? And what is making us comfortable to grow it again?

Question: Rajiv Mehta - YES Securities - Analyst : Okay. And just one clarification. When I look at the employee cost growth, it is growing much higher than the employee count. So you have a large business team. So is it because of good growth, the higher amount of variables and incentives have been distributed, or is there any underlying change in the incentive structure that has been raised? And which is why the actual employee cost is going ahead of employee number?

Question: Rajiv Mehta - YES Securities - Analyst : Understood. Thank you.

Question: Abhishek Jain - AlfAccurate - Analyst : Thanks for the opportunity and congratulations for a strong set of numbers. Sir, as you mentioned that (inaudible) is high, used vehicle prices are also firm, which is favorable for the new CV demand. But MSME demand in past nine months. So how do you see recovery in the fourth quarter FY26? 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 24, 2025 / 1:30PM, SHMF.NS - Q3 2025 Shriram Finance Ltd Earnings Call

Question: Abhishek Jain - AlfAccurate - Analyst : So any benefit do you see due to the scrappage policy that will be implemented by the government in the coming quarter?

Question: Abhishek Jain - AlfAccurate - Analyst : Okay, sir. And my last question on the passenger vehicle side that in this quarter, we have seen a very strong numbers in the retail side and that's why inventory has come down. So how do you see growth in the passenger vehicle in the coming quarter or FY26?

Question: Abhishek Jain - AlfAccurate - Analyst : And what is your strategy to gain the market and the passenger vehicles and anything that means?

Question: Abhishek Jain - AlfAccurate - Analyst : Thank you, sir. That's all on my side. 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 24, 2025 / 1:30PM, SHMF.NS - Q3 2025 Shriram Finance Ltd Earnings Call

Question: Preethi RS - UTI AMC - Analyst : Hi, good evening. So can you explain the difference in trends that you're observing in used vehicles, commercial vehicles, and new TV? And what could be the possible reasons? One, on asset quality; and two, on demand.

Question: Preethi RS - UTI AMC - Analyst : Got it. And on the asset quality trend, sir?

Question: Preethi RS - UTI AMC - Analyst : No, my question was in the short to medium term. Are you seeing stress in used vehicles lower than that of new vehicles?

Question: Preethi RS - UTI AMC - Analyst : Understood. Thank you, sir. Thank you. 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 24, 2025 / 1:30PM, SHMF.NS - Q3 2025 Shriram Finance Ltd Earnings Call

Question: Suraj Das - Sundaram Mutual Fund - Analyst : Yeah, hi, sir. Thanks for the opportunity. I have joined a bit late. So I don't know if the question has been asked already or not. So pardon me for that thing. So the question is on the two wheeler side. So the growth has been pretty robust and then even this quarter on a QoQ basis. The growth has been very strong at 18%. So I mean, what is the outlook here? Because if I see, let us say the bank are agreeing the two wheeler segment citing, asset quality problems and all that thing. But your growth has been very robust while there has been some slight uptick in the Q2 numbers in terms of security also. But how do you see that this growth is up in FY26 over the next two to three quarters? So that will be my first question and then I have a follow up.

Question: Suraj Das - Sundaram Mutual Fund - Analyst : Sure, sir. Got it. And sir, I mean, is this already -- I know our repeat customer whom we are lending to and hence probably we are more comfortable or these are customers that are new to company type of customer which we are acquiring in this segment?

Question: Suraj Das - Sundaram Mutual Fund - Analyst : Okay. So rest of the 95% customers, that would be new to Shriram customers? 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 24, 2025 / 1:30PM, SHMF.NS - Q3 2025 Shriram Finance Ltd Earnings Call

Question: Suraj Das - Sundaram Mutual Fund - Analyst : Okay. And sir, I mean, what kind of CIBIL score they would typically have?

Question: Suraj Das - Sundaram Mutual Fund - Analyst : Okay, sir. Got it. And the last question sir would be on the overall provisioning side. So while -- I mean, there has been slight uptick, but still we are maintaining something like 2% type of credit cost. But if I see the overall coverage, ECL coverage on Stage 1, 2, 3, that is the percentage is still increasing. So do you think this number will continue to inch up and the asset quality performance will be overall stable? Or at some point of time, maybe you would rationalize this number to let us say, earlier levels because some of your Stage 1 and 2 and 3 coverage ratios are probably would be highest in the last many quarters. Unidentified Company Representative On the Stage 3, it will be in the similar line and coming to the Stage 1 and 2, yearly, we run those last five years' data. So the current year data gets added up. Based on that whatever is the PD LD, then we start up export or not. So we need to wait and see.

Question: Suraj Das - Sundaram Mutual Fund - Analyst : Okay. Sure, understood. Thank you, sir, for answering all my questions.

Question: Sharat Dua - Amundi - Analyst : Thank you for the time. Can I just go back to the NIM, the net interest margin and just clarify that you given the seasonality, you would expect that NIM to still be weaker in Q4 than we've seen in the third quarter even if you use up some of the liquidity?

Question: Sharat Dua - Amundi - Analyst : Even with the seasonality of new vehicles sales being greater in the fourth quarter?

Question: Sharat Dua - Amundi - Analyst : Okay. And just on the big picture, I mean, obviously you've gone into some detail about what you're seeing in different product lines and asset quality wise. A lot of other players in the financial space are obviously slowing down given the cycle that they're seeing and the experiences they're getting right now. So the message is that you will not be doing that. Is that clear? You could expect to continue to grow at sort of mid-teen level for the next financial year, at least?

Question: Sharat Dua - Amundi - Analyst : Okay, great. Thank you. And last one maybe just on the staff numbers. So you mentioned you've hired like 5,000 or so this year so far. So will we still be seeing significant increases in employee numbers?

Question: Sharat Dua - Amundi - Analyst : Okay. Thank you.