Shriram Finance Ltd Conference Call Transcript

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

Question: Mahrukh Adajania - Nuvama Wealth Management - Analyst : Yeah, hello, congratulations, sir. Sir, I had a couple of questions. Firstly, what was the ROE indication that you gave? I could not catch that properly.

Question: Mahrukh Adajania - Nuvama Wealth Management - Analyst : Okay, so my questions were that just in terms of growth, where do you see the share of new CV settling? What do you think would be an ideal mix for your new CV? And if you could guide to a margin trajectory, say, over the next one year and maybe even longer term, would we see it crossing 9%? How does it work?

Question: Mahrukh Adajania - Nuvama Wealth Management - Analyst : Sure. But sir, what will be the ideal proportion? Like I mean, how much do you want to increase the proportion of new vehicles to? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Mahrukh Adajania - Nuvama Wealth Management - Analyst : Got it. And the ROA target -- not target, but the indicative ROE is for two to three years, is it?

Question: Mahrukh Adajania - Nuvama Wealth Management - Analyst : Over four years. Okay.

Question: Mahrukh Adajania - Nuvama Wealth Management - Analyst : Okay, sir. So, thank you so much and all the best thank you.

Question: Piran Engineer - CLSA Ltd - Analyst : Yeah, hi team congratulations on this landmark deal for the Shriram Group and the Indian financial sector. Sir, my first question is some of the management changes we did two months ago. Was this in lieu of this deal? And should we expect any more changes over the next -- course of the next few quarters?

Question: Piran Engineer - CLSA Ltd - Analyst : Okay. Understood. And sir, also, like you mentioned that in the vehicle segment, you will go into the higher ticket, lower risk segment. Should we expect something similar in MSME where you get into higher ticket LAP, right now, you are operating in the INR10 lakh, INR12 lakh segment. But that's still a more niche market, the INR50 lakh, INR1 crore segment. Should we expect you all to enter into that also?

Question: Piran Engineer - CLSA Ltd - Analyst : Sir, but if I may ask, why will you not do that now that your cost of funds is likely to be competitive with the good players?

Question: Piran Engineer - CLSA Ltd - Analyst : Understood. Understood. And even this vehicle -- new vehicle segment that we are talking about doubling market share, that will come primarily from new vehicle loans to existing customers. We will not go into the open market to source new vehicle loans aggressively. Is my understanding correct?

Question: Piran Engineer - CLSA Ltd - Analyst : Got it. Got it. And just my last question, could we -- now that we're sitting on INR40,000 crores of cash, any potential M&A that we could be thinking of?

Question: Piran Engineer - CLSA Ltd - Analyst : Got it. Okay, that was it from my end thank you and wish you all the best and happy new year.

Question: Avinash Singh - Emkay Global Financial Services Ltd - Analyst : Yeah, good morning congrats on the deal. First question, again, repeating on that, of course, you have provided some color, but I mean, now with the higher capital in terms of accelerating growth, I mean, in terms of product, customer and geography, I mean, on the product side, adjacencies you explained, where you would like to go. Now in terms of your geographic footprint, you have been relatively more into the rural semi-urban. I mean, does now your cost of funding becoming very, very competitive, would you like to kind of venture more aggressively into urban or metros as well as, I mean, going after the prime customers also where some of the -- I mean, typically, the NBFCs or banks have been operating. So I mean, do you have certain plans around this customer and geographic adjacencies? And secondly, on MUFG, I mean, of course, as the filing and everything says for now, they are kind of a public investor. But now given the kind of direction of this investment and strategic importance, is there a plan from their side to kind of being turning into the copromoters and like that? Thanks.

Question: Avinash Singh - Emkay Global Financial Services Ltd - Analyst : Thank you. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Pratik Kothari - Unique PMS - Analyst : Yes, hi, good morning. Sir, one question, irrespective of this large capital, we had the wherewithal, the products, the customer segment, et cetera, to kind of accelerate growth. But like you mentioned, for the last three, four, five years, we have been growing at this 15%, 16%, 17%. So is it just this incremental capital which kind of now makes us more aggressive and we want to do 20% because the reverse would have been what we would expect where you are growing at 20% and you need capital and hence, you went out and got capital. It seems the reverse where you got capital and hence now we want to grow faster.

Question: Pratik Kothari - Unique PMS - Analyst : Correct. And sir, this 100 bps of cost of fund improvement over two years, if I just highlight the time line, what happens very quickly, what happens two years out and the assumptions behind the same?

Question: Pratik Kothari - Unique PMS - Analyst : Okay, so the thought behind this is two, right? So one is a larger institutional partner backing us and; two, potential rating upgrades. So two of these fall in place and we think 100 bps is what we can get. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Pratik Kothari - Unique PMS - Analyst : So I thought this 100 was over and above that. So this assumes the RBI rate cuts, which is yet to pass through?

Question: Pratik Kothari - Unique PMS - Analyst : Correct. And sir, last on this $200 million noncompete that the employee trust kind of got. If you can just explain what is this, the rationale, something on this?

Question: Pratik Kothari - Unique PMS - Analyst : But sir, this is unfair to the other minority, right? It's just this one cohort of investors who get something. I mean, I understand the reason behind it and usually noncompete is part of things, but to get such a large amount just to one cohort, this seems off as a minority investor.

Question: Pratik Kothari - Unique PMS - Analyst : No, fair. But the one of the cohort of investors got a larger -- I mean, if you do the per share calculation or whatever, you got a different amount than what the others got, what Shriram Finance got. I mean, agreed to what you're saying, but I mean, the promoters did get a different rate.

Question: Pratik Kothari - Unique PMS - Analyst : Okay, thank you.

Question: Shubhranshu Mishra - PhillipCapital (India) Pvt Ltd - Analyst : Hi, thank you for this opportunity. Good morning, and, congratulations on this deal. So just the stock exchange notification that was originally put out, there were two other points, which you answered earlier, but I'm just reiterating it that MUFG can second up to three of its personnel as senior management up to six months of the completion date. And there is a nonbinding MOU to explore framework to identify beneficial business opportunities, which implies that there could be senior management changes or they can have their own people come in. Second is that there can be acquisition targets. You've answered these two. But if you can just clarify these 2 points from the stock exchange notification itself thanks.

Question: Shubhranshu Mishra - PhillipCapital (India) Pvt Ltd - Analyst : Areas of synergy.

Question: Shubhranshu Mishra - PhillipCapital (India) Pvt Ltd - Analyst : Great. One last question is that they also have a significant stake in DMI Finance, which is into digital lending and consumer durable lending, which could be a complementary business for us as well. In the future, is there a case that we will see the merger of DMI Finance into Shriram Finance?

Question: Shubhranshu Mishra - PhillipCapital (India) Pvt Ltd - Analyst : And we don't want to explore that complementary business also in the present construct, consumer durable financing fintech partnerships, so on and so forth.

Question: Shubhranshu Mishra - PhillipCapital (India) Pvt Ltd - Analyst : Thank you. Best of luck and Happy New Year.

Question: Viral Shah - IIFL Capital Srvice Limited - Analyst : Yeah, hi thank you first of all, congrats on this landmark investment, sir. Sir, I have three questions. Third one, more of a clarificatory question. So first of all, you have mentioned also about 100 bps reduction in cost of funds. Now if I tie this with the lower leverage that we will have post this money coming in and also the lower credit cost that you guided, do you think you are being too conservative on the ROA numbers that you are guiding for, sir? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. Because just mathematically, when I add all these three up, the numbers seem to be much higher the ROE uplift, at least, of course, in the intervening period, I'm not talking of, say, on a steady-state basis, like-for-like leverage, et cetera, which will still be at least six, seven years down the line.

Question: Viral Shah - IIFL Capital Srvice Limited - Analyst : Okay. Got it, sir. Sir, secondly, on the growth front, you mentioned the growth acceleration from 15%, 16% to say 18%, 20%. And this seems to be just incrementally on back of lending for new vehicles and that too for retaining customers. Do you think this is the kind of -- just on back of this, we can achieve this growth even say, in the next one to two years?

Question: Viral Shah - IIFL Capital Srvice Limited - Analyst : Got it. And sir, lastly, on the leverage, you mentioned the sweet spot of 4.5 times. Just wanted to clarify, are you referring to the debt to equity or the asset to equity?

Question: Viral Shah - IIFL Capital Srvice Limited - Analyst : Got it, sir thank you. All the best.

Question: Shreya Shivani - Nomura - Analyst : Hi, good morning, everybody, and congratulations on this historic deal. Sir, I have two questions. My first question is just focusing on your product mix. While you've explained very well that your new customers itself -- your existing customers itself can support growth. But where would the vehicle, non-vehicle mix be for you? It has been at about -- if you include two-wheeler in the vehicle, it has been at about 80-20. Will that over five years, will you take -- will you keep it at 80-20? Does that shift to 50:50 or any other number? If you can help us understand how the diversification within your book takes place. And my second question is on the MUFG, the three set of people who will come in, will they -- is there any clarity on which business segments would they come in to be a part of? One, you've mentioned how you want to lever their digital capabilities. So one can expect something like that can come in there. But is there any other area where you expect these people to -- the new set of people to come in and be a part of certain business segments? So those are my two questions thank you.

Question: Shreya Shivani - Nomura - Analyst : Got it. sir, but there is still a possibility that some of them could come into some business segment as secondary also, right, not just in these three account maintenance and reporting that you're talking. That is still a possibility. There's no restriction on that, right?

Question: Shreya Shivani - Nomura - Analyst : Got it, sir. This is very useful thank you and all the best.

Question: Umang Shah - Kotak Mutual Fund - Analyst : Yeah, hi, good morning and thanks for taking my question congratulations on the deal and the much anticipated rating upgrade. Sir, just one question and a couple of clarifications. First is on the noncompete. If you could just help us understand this better. So what is the duration of the noncompete? And the noncompete, does it just apply on SOT or even the members or beneficiaries of the SOT, which could be current or past senior management within the group?

Question: Umang Shah - Kotak Mutual Fund - Analyst : Okay. Okay. And any of the members or beneficiaries are sort of then technically become part of this agreement, right?

Question: Umang Shah - Kotak Mutual Fund - Analyst : Okay. Understood. Okay. Sir, the other two clarifications. One is once all the regulatory approvals are in place, the $4-odd billion comes -- the money comes into the company in one shot? Or are there any milestone-linked investments?

Question: Umang Shah - Kotak Mutual Fund - Analyst : Okay, perfect. And so the last one is, listening to your commentary, it appears that your ROE target for the next five years appears a bit conservative, even if I build in the cost of fund advantage and maybe a little bit of credit cost benefit. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. Ideally we should hit our ROEE targets much sooner, compared to what you're guiding for. I mean, it's fair to be conservative, but is my understanding correct, or am I missing something here?

Question: Umang Shah - Kotak Mutual Fund - Analyst : All right, okay, no problem, sir. I got it thank you so much I wish you the best.