Shriram Finance Q1FY25 Reflects Strong growth across AUM, NIIMs & Asset Quality Improved.
Company Overview
Shriram Finance Ltd., a significant entity within the Shriram Group, operates extensively in consumer finance, stock broking, distribution, life insurance, and general insurance. Founded in 1979, the company stands as India’s largest non-bank financial company (NBFC) in retail asset finance. It is a leader in structured financing of used commercial vehicles and two-wheelers, specializing in serving small business owners and road transport operators.
Product Portfolio
Products: A. Commercial Vehicle Loans: Financing for tractors, farm equipment, passenger commercial vehicles, and commercial products.
B. Business Loans: Offers financing to dealers, private financiers, customers, and the broader commercial vehicle industry.
C . Deposits: Recurring Deposits (RD), Fixed Deposits, and related services.
D. Working Capital Advances: Includes fuel financing, challan marking down, asset financing, toll financing, tire financing, repair/top-up advances, and vehicle protection advances.
E. Life Insurance: Smart Protection Plan by Shriram Life and Cashback Term Plan by Shriram Life.
F. Emergency Credit Line Guarantee Program: Addresses the operating capital needs of micro, small, and medium-sized business borrowers. As of March 31, 2024, the AUM for personal loans stood at ₹8,974.7 crores, accounting for 3.99% of the total AUM. The AUM for gold loans was ₹6,299.8 crores, representing 2.80% of the total AUM.
Small and Medium Business (SME) Loans: These include both secured and unsecured business loans tailored to meet a variety of financial needs. As of March 31, 2024, SME loans comprised 11.66% of the total AUM, amounting to ₹26,234.6 crores.
Industry Outlook :
Non-Banking Financial Companies (NBFCs) have become crucial financial support systems for a significant portion of the Indian population, especially Small and Medium Enterprises (SMEs) and underserved groups that traditional banking institutions often overlook. In recent years, the financial services industry in India has undergone significant transformation. This transformation is characterized by the rise of neo-banking, digital authentication, the widespread adoption of mobile banking and the Unified Payments Interface (UPI), and the increasing penetration of mobile internet. Additionally, the 64 million MSMEs in the Indian MSME sector contribute 30% of the country’s GDP. Less than 15% of the total credit demand of ₹69.3 trillion, which is growing at a CAGR of 11.5%, is met by formal sources.
Q1FY25 Business & Financial Performance:
Shriram Finance exhibited strong AUM growth, with AUM increasing by 21% year over year in FY24, compared to a similar 21% growth in the previous year. For FY25, management has projected an AUM increase of more than 15%. Total disbursements amounted to ₹377 billion, reflecting a 24% year-over-year growth. Asset Quality: Asset quality improved due to better collections, although it slightly declined from 5.5% to 5.4%. Credit costs decreased quarter over quarter as a result of better recoveries; management maintained the 2% credit cost projection. The improvement in asset quality is attributed to recovery from the election period and fewer disruptions. The gross non-performing assets (NPA) showed a year-over-year decrease to 5.39% from 6.01%, indicating improved asset quality management. Additionally, the company’s cost-to-income ratio slightly increased to 27.45%.Net Interest Income (NII): The NII increased by 21% year over year to ₹5,555 crore, primarily due to a stable yield on advances and slightly better liability expenses. This rise in NII was crucial for enhancing the company’s overall profitability. Disbursements: Disbursements rose by 24% year over year to ₹37,709 crores. As of March 31, 2024, Stage 3 Assets improved to 5.45% from 6.21% on the same date in 2023. Net Stage 3 Assets, after accounting for Stage 3 provisions, were at 2.70%, down from 3.19% on March 31, 2023.Due to increased AUM growth, a higher net interest margin, and improved asset quality, which led to greater profitability for the year ending March 31, 2024, the return on net worth rose to 15.64% as of March 31, 2024, compared to 14.84% as of March 31, 2023.OEM Sales in Q1 FY25: Sales were reasonably good, with commercial vehicle sales growing by 3.5% to 224,000 units, including a 9.7% growth in the MHCV segment to 85,421 units. The company’s net profit increased to ₹2,030 crore for the quarter, up from ₹1,712 crore during the same period last year, representing an 18.6% year-over-year increase. The business also benefited from consistent back costs and effective cost-control measures
Shriram Finance financial statements for Q1FY25:
| Particulars | Q1FY25 | Q4FY24 | Q1FY24 | QoQ % |
| Interest income | 95,210.1 | 93,714.1 | 79,566.7 | 1.60% |
| Net interest income | 53,544.7 | 53,360.6 | 44,386.8 | 0.35% |
| Operating expenditure | 15,744.2 | 15,540.9 | 13,617.1 | 1.31% |
| Core operating profit | 37,800.5 | 37,819.7 | 30,769.7 | -0.05% |
| Other income | 740.9 | 1,236.3 | 492.6 | -40.07% |
| Operating profit | 38,541.4 | 39,056.0 | 31,262.3 | 1.32% |
| Profit before tax | 26,665.9 | 26,441.2 | 22,476.2 | 0.85% |
| Tax Expense | 6,860.0 | 6,982.5 | 5,721.8 | -1.75% |
| Profit after tax | 19,805.9 | 19,458.7 | 16,754.4 | 1.78% |
| EPS | 52.70 | 51.79 | 44.73 | 1.76% |
Ratios
| Ratios | % |
| Capital Adequacy Ratio | 20.30% |
| Return on Total Assets | 3.13% |
| Debt Equity Ratio | 3.83 |
| Net Interest Margin | 8.84% |
| Interest Coverage Ratio | 2.34 |
| Net Profit Margin | 20.55% |
| Return on Equity | 15.64% |
| ROCE | 11.31 |
| Price To Book Ratio | 12.04 |
Concall Highlights:
Financial Performance : In Q1 FY25, disbursement growth was 23.82% year over year, and AUM increased by 20.82% year over year. Net interest income grew by 20.63% year over year, while PAT increased by 18.21% year over year. Net Stage 3 was at 2.71% in Q1 FY25, while gross Stage 3 was at 5.39%. The credit cost for the quarter was 1.87%. The cost-to-income ratio stood at 27.45%.
Subsidiary Performance (Shriram Housing Finance): In Q1 FY25, AUM grew by 50.93% year over year. Net interest income increased by 40.62% year over year, while PAT rose by 5.85% year over year.
Asset Quality and Recovery: Recovery efforts and fewer disturbances during the election season contributed to the improvement in asset quality. There has been a decrease in repo operations across the business as borrowers aim to retain their assets. Recovery efforts have been continuous over the past thirty months.
Plans for Branch Expansion: The company plans to add 500 gold loan branches and 175 MSME branches over the next two years. The total number of branches is expected to reach approximately 900 for MSME loans and 2,000 for gold loans
MSME Business: The company specializes in providing loans to small businesses in the trading and service industries. The average MSME loan ticket size is approximately ₹10 lakhs, with 40% of MSME loans originating from outside the South.
Asset Quality and Provisioning: ECL provisions are based on model performance and take into account various factors. There is no fixed rule for maintaining ECL provisions at 6%; it depends on the product mix and other variables.
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