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Shriram Finance Q3FY25: Strong Loan Book Growth, PAT Boosted by Exceptional Gain, NIMs Contract
Equities, Markets, Research, Result Updates - January 27, 2025

Shriram Finance Q3FY25: Strong Loan Book Growth, PAT Boosted by Exceptional Gain, NIMs Contract

Shriram Finance Q3FY25: Strong Loan Book Growth, PAT Boosted by Exceptional Gain, NIMs Contract

Company Name: Shriram Finance Ltd | NSE Code: SHRIRAMFIN | BSE Code: 511218 | 52 Week high/low: 730 / 439 | CMP: INR 512 | Mcap: INR 96,205 Cr | P/BV – 1.88

About the stock
➡️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.

Robust loan book growth backed by healthy growth in CV, PV and MSME
➡️Shriram’s loan book has grew by double digit at 19% YoY (+5% QoQ) to 2,54,470 Cr supported by growth in CV, PV and MSME segment.

➡️Commercial vehicle constitute 45% of the overall loan book, growing by 13% YoY (+3% QoQ) to 1,15,767 Cr. Passenger vehicle segment constitute 20% of overall segment, growing by 25% YoY (+6% QoQ) to 51,884 Cr. While MSME segment constitute 14% of overall segment, growing by healthy growth of 50% YoY (+7% QoQ) to 34,632 Cr. This three segment led the solid growth in overall loan book in Q3FY25.

➡️Rest other segment report good growth but command a low weight in overall loan book. Construction equipment grew at 10% YoY followed by Farm equipment at 42% YoY, 2W at 27% YoY, gold at -7% while personal loan degrow by 9% YoY.

➡️Borrowing overtake the loan growth, increased by 26% YoY (+8% QoQ) to 2,235 bn driven by deposit growth of 24% YoY (+6% QoQ).

Book Growth (As on)  Q3FY25 Q3FY24 YoY (%) Q2FY25 QoQ (%)
Loan 2,54,470 2,14,233 19% 2,43,043 5%
Borrowings (bn) 2,235 1,775 26% 2,078 8%
Deposit (bn) 534 431 24% 502 6%

Double digit growth in NII backed by loan book expansion; while NIMS down 50 bps
➡️NII report a double digit healthy growth of 14% YoY (+2% QoQ) to 5,590 Cr driven by loan book expansion only while NIMs contract for the quarter. NIMs down by 50 bps YoY (-26 bps QoQ) to 8.48% due to the expansion in CoF.

➡️PPOP jump 11% YoY (+2% QoQ) to 4,085 Cr, Operating efficiency benefit lagged as total OpEx increased 22% due to rise in employee cost and other expense.

➡️PAT boost by 96% YoY (+72% QoQ) to 3,570 Cr on one time exceptional gain of 1,657 Cr. PAT excluding exceptional item report 5% YoY and on QoQ degrow 8%.

Years  Q3FY25 Q3FY24 YoY (%) Q2FY25 QoQ (%)
Interest income  10,341 8,618 20% 9,815 5%
Interest expenses 4,751 3,707 28% 4,350 9%
NII 5,590 4,911 14% 5,464 2%
Other income  365 309 18% 282 29%
Total Net income 5,954 5,220 14% 5,746 4%
Employee expenses 970 810 20% 907 7%
Other OpEx 899 721 25% 853 5%
Total Opex  1,869 1,531 22% 1,760 6%
PPOP 4,085 3,689 11% 3,987 2%
Provision 1,326 1,250 6% 1,235 7%
Exceptional items 0 0
PBT 2,759 2,440 13% 2,752 0%
Tax expenses  846 621 36% 680 24%
Tax rate  31% 25% 20% 25% 24%
PAT  1,913 1,818 5% 2,071 -8%
PAT% 18% 20% -12% 21% -13%
EPS 10.17 9.68 5% 11.02 -8%
No. of equity shares  188 188 0% 188 0%

Asset quality improved YoY; QoQ remain stable
➡️Shriram’s asset quality has been improved during the quarter as GNPA and NNPA are in downward trajactory. GNPA/NNPA decline 28 bps/ 4 bps YoY while QoQ basis remain stable to stood at 5.38%/2.68% as of Q3FY25.

Asset Quality Q3FY25 Q3FY24 YoY (bps) Q2FY25 QoQ (bps)
GNPA 5.38 5.66 -28 5.32 6
NNPA 2.68 2.72 -4 2.64 4

Valuation and Key metrics
➡️Currently the stock is trading at 1.88x price to book value. NIMs contract by 50 bps YoY and 26 bps QoQ to 8.48% led by the expansion in CoF. ROA dissapoint down by 23 bps YoY and QoQ both to 2.88% while ROE down 13 bps YoY and 59 bps QoQ 16%. Company capital position CAR remain stable YoY to stood at 21% but still above the RBI guidelines.

Key metrics  Q3FY25 Q3FY24 YoY (bps) Q2FY25 QoQ (bps)
NIMs 8.48 8.99 -51 8.74 -26
ROA 2.88 3.11 -23 3.06 -18
ROE 15.41 15.54 -13 16 -59
PCR 0 51.7 -5170
CAR 21 21.01 -1 20.16 84

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The stable growth of Shriram Finance driven by policy aid and balance credit mix

The stable growth of Shriram Finance driven by policy aid and balance credit mix

Shriram Finance remains the biggest Non-Banking Financial Company in the retail segment. Its current market price is about Rs. 527 and market capitalisation is around Rs. 99,157 crore. The ratings given to the stock is over-weight.

The performance of the company was affected by a hike in operating spendings and provisions. Despite the prevailing contraction in the industry, the quality of assets of the company continued to be strong due to a healthy balance of different credits.

Performance of the stock
During the period of the previous three months, the shares of the company recorded a decline of about 19 percent. Since 10th January, 2025, the stock has traded in accordance with a new split basis as it was split into a ratio of 1:5.

Healthy credit mix
The commercial auto industry is facing a declining trend in the present times. Despite this, the growth in AUM was higher than predicted due to a rise in loans taken for passenger vehicles, MSME, and two-wheelers.

The progress in medium and heavy commercial vehicles was not much due to bad weather conditions, prolonged elections, and also due to contraction in spending on infrastructure. In contrast to this, the two-wheelers and Passenger vehicles recorded a strong growth potential. Further, rise in rural consumption levels lead to boost to growth in demand for farm equipment and tractors.

There is a potential for Commercial vehicles to grow in case of increase in market activity. Apart from this, the growth in loans for the non-auto segment will lead to expansion of credit growth. The company recorded a consecutive fall in the gold loans segment. Despite this, it is anticipated to record a slight hike in the growth following the fourth quarter of the financial year 2025. The company expects its AUM to grow in the range of 15 to 20 percent.

Sale of its subsidiary
In the month of December 2024, the company sold shares of about 84.44 percent of its housing finance subsidiary to Warburg Pincus. The sale was worth about Rs. 3,929 crore. The money acquired from the sale of the subsidiary will help to finance its further growth in its key business areas having high returns. It will give an opportunity to the company to focus on growth of operations which give high returns to the company.

This sales agreement helped the company to raise its capital adequacy ratio to about 84 basis points on a quarter-on-quarter basis in the third quarter of the current financial year. The sale of the housing finance subsidiary of the company led to a special profit of about Rs. 1,489.39 crore to the company after deduction of its taxes.

Performance of asset class
In midst of tension across the industry, the company was able to maintain low cost of loans. The reason for this is efforts taken regarding collection of loan amounts and loan approvals. This has resulted in a good quality of assets of the company. The company has maintained a target of keeping the cost of loans below the range of 2 percent. The company was able to keep its loan cost in the range of 1.85 percent.

Performance of NIMs
Even though the loan cost is low and stable returns observed by the company, the contraction in net interest margins was recorded. The reason for this is surplus liquidity in the company. In the fourth quarter of the current financial year, the company is projected to record a hike of 20 basis points in the net interest margins, when the issues of cash flow are resolved. The expansion in assets with higher returns will help to improve net interest margins. Further, the possibility of RBI reducing interest rates will help in the progress of the company.

In the third quarter of the financial year 2025, the cost of employees and other overhead was spiked. This resulted in the expansion of the cost-to-income ratio of the Shriram Finance company compared to being in range of about 28 percent in the current financial year. Further, the ratio is anticipated to fall in the financial year 2026. The reason for this is progress in digitization and productivity of the company.

In addition to this, expansion of NIMs, stable loan cost and a healthy growth in AUM will lead to boost to Return on Equity (ROE) of the company.

Projection
Shriram Finance was able to tackle the prevailing economic challenges in the economy. It was able to outshadow its competitors. One of the reasons for this is power to set prices as it has a strong position in the rural areas and financing of used vehicles segments. It also has the advantage of selling extra products to their existing consumers.

Following its merger, the company is able to diversify its services resulting in better risk management and not depending on one type of financing only.

Further, the recovery would be observed in the commercial vehicles segment due to rise in rural demand and better macroeconomic situation. It is also due to growth in logistics operations due to good monsoon and expansion in infrastructure expenditure in the first half year of the financial year 2026.

In present times, the company’s stock price is about 1.8 times compared to its projected book value for the financial year 2026. Further, the current fall in the stock price can act as a chance for long-term investors to purchase and hold the stock.

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Shriram Finance Targets ₹5,000 Cr AUM with New Green Finance Vertical

Shriram Finance Targets ₹5,000 Cr AUM with New Green Finance Vertical

Shriram Finance Limited, a prominent player in India’s non-banking financial sector, has announced the consolidation of its green financing initiatives under a new vertical named Shriram Green Finance. This strategic move aims to expand the company’s focus beyond electric vehicle (EV) financing to encompass a broader spectrum of sustainable projects, with a target to achieve an asset under management (AUM) of ₹5,000 crore over the next three to four years.

Strategic Focus and Objectives
Building upon its existing expertise in EV financing, Shriram Green Finance plans to diversify its portfolio to include:
Electric Vehicles (EVs): Financing for a range of EVs, including two-wheelers, to promote cleaner transportation options.
Battery Charging Stations: Supporting the infrastructure necessary for EV adoption by funding charging facilities.
Renewable Energy Products and Solutions: Investing in sustainable energy projects to contribute to a greener economy.
Energy-Efficient Machinery: Providing financial solutions for machinery that enhances energy efficiency across various industries.

By consolidating these efforts under Shriram Green Finance, the company aims to provide sharper focus and clarity to its sustainability initiatives.

Geographical Outreach and Partnerships
Initially, Shriram Green Finance will concentrate its efforts in the regions of Karnataka, Kerala, the National Capital Region (NCR), and Maharashtra. The company is actively engaging with original equipment manufacturers (OEMs) producing EVs to establish long-term partnerships, ensuring seamless and accessible vehicle financing solutions for consumers.

Leadership Perspectives
Umesh Revankar, Executive Vice Chairman of Shriram Finance, emphasized the company’s commitment to aligning its strategies with the global shift toward a greener economy. He stated, “This initiative is a testament to aligning our strategies with the global shift toward a greener economy, and we are charting a course for long-term value creation that balances profitability with purpose.”

Y.S. Chakravarti, Managing Director and Chief Executive Officer of Shriram Finance, highlighted the company’s vision to build a sustainable ecosystem benefiting all stakeholders. He remarked, “At Shriram Finance, we view sustainability as an essential driver of progress. The Green Finance vertical exemplifies our vision to build a sustainable ecosystem that benefits all stakeholders.”

Funding and Investment Plans
To support its ambitious goals, Shriram Green Finance plans to raise funds from both global and domestic sources, focusing on green investments for onward lending to its customer base. This approach not only broadens the company’s funding avenues but also aligns with international and national efforts to promote sustainable development.

Market Context and Opportunities
India’s renewable energy sector has experienced significant growth over the past decade, driven by government initiatives and a heightened focus on sustainability. Similarly, the EV sector is undergoing rapid expansion, propelled by ambitious policies, technological advancements, and increasing environmental awareness. The development of charging infrastructure, including fast-charging and battery-swapping technologies, further supports this growth.

OUTLOOK BUSINESS
By leveraging its extensive customer base, particularly in semi-urban and rural areas, Shriram Finance is well-positioned to play a transformative role in green financing. The company’s strategic focus on these high-growth sectors indicates a commitment to contributing to India’s sustainable development goals while exploring new business opportunities in the evolving green economy.

Conclusion
Shriram Finance’s launch of Shriram Green Finance represents a significant milestone in its journey toward fostering sustainable and inclusive growth. By consolidating its green financing initiatives under a dedicated vertical, the company aims to provide focused financial solutions that support the transition to a low-carbon economy. With a clear target of achieving ₹5,000 crore in AUM over the next three to four years, Shriram Green Finance is poised to make substantial contributions to India’s green finance landscape, balancing profitability with purpose and aligning with global sustainability trends.

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Shriram Finance's $1.27 Billion ECB Deal Sets Record

Shriram Finance’s $1.27 Billion ECB Deal Sets Record

Shriram Finance, India’s second-largest non-banking financial company (NBFC), is on the verge of securing a landmark $1.27 billion external commercial borrowing (ECB) deal. This multi-tranche, multi-currency loan is poised to become the largest such transaction by any Indian NBFC. The deal highlights Shriram Finance’s strategic approach to diversifying its funding sources and reflects the growing importance of foreign currency borrowings in the current regulatory environment.

Deal Overview
The $1.27 billion loan comprises multiple tranches with maturities ranging from three to five years. Leading global financial institutions are participating in this monumental deal, including HSBC (UK), MUFG and SMBC (Japan), International Finance Corporation (IFC) from the World Bank Group, DBS Bank (Singapore), BNP Paribas (France), Standard Chartered Bank, and First Abu Dhabi Bank.

According to insiders, the largest component of the deal is a three-year loan valued at $900 million. This triple-currency tranche includes $600 million denominated in US dollars, with the remaining amount split almost equally between dirhams and euros. Additionally, MUFG has provided a three-and-a-half-year bilateral loan of $275 million, while IFC has contributed $10 million via a five-year loan. The loans are expected to be syndicated further among other global banks by early 2025.

Interest Rates and Cost of Borrowing
The $900-million three-year tranche has been priced at 200 basis points (bps) over the three-month secured overnight financing rate (SOFR), which is currently trading at 4.76%. This implies an effective interest rate of approximately 6.76%. Similarly, MUFG’s $275 million loan is priced at 205 bps above SOFR, resulting in a cost of 6.81%. IFC’s five-year loan is the most expensive, priced at 210 bps over SOFR, equating to an interest rate of 6.86%.

These rates reflect the competitiveness of the deal, especially given the global interest rate environment. For Shriram Finance, accessing foreign currency loans at these rates not only provides cost-effective capital but also ensures longer tenures compared to domestic borrowings.

Strategic Implications
The significance of this deal extends beyond its record-breaking size. It underscores the increasing reliance of Indian NBFCs on external financing in the wake of tightened domestic regulations. The Reserve Bank of India (RBI) has recently expressed concerns over the rising exposure of banks to the NBFC sector. Consequently, bank funding for NBFCs has dried up, forcing these institutions to explore alternative avenues such as ECBs.

Foreign currency borrowings present a viable solution for NBFCs, offering several advantages:
Diversification of Funding Sources: By tapping into international markets, NBFCs can reduce their dependency on domestic banks and mutual funds.

Attractive Pricing: Given the competitive interest rates, ECBs often prove more cost-effective than domestic borrowings.

Longer Maturities: Foreign loans typically come with longer tenures, which align better with the asset-liability management requirements of NBFCs.

Umesh Revankar, Executive Vice Chairman of Shriram Finance, confirmed the company’s plans, emphasizing that the funds will be deployed to support its lending business. “This deal helps diversify our funding sources and strengthens our liquidity position,” he said.

Utilization of Funds
Shriram Finance is primarily known for its commercial vehicle (CV) financing business. However, the company is actively working to diversify its loan book. As of September 2024, CVs and passenger vehicles accounted for 67% of its Rs 2.33 lakh crore portfolio. The remaining portfolio comprises loans to micro, small, and medium enterprises (MSMEs), housing finance, and other segments.

The proceeds from the ECB deal will be channeled toward expanding the company’s lending operations, with a focus on increasing its exposure to MSMEs. This strategic shift aligns with Shriram’s long-term vision of reducing concentration risk and capturing growth opportunities in underpenetrated markets.

Market Context
The timing of this deal is significant. Over the past year, the global interest rate environment has been volatile, with central banks across the world tightening monetary policies to combat inflation. Despite this, Shriram Finance has managed to secure competitive rates, demonstrating its strong credit profile and the confidence of international lenders.

In the Indian context, the RBI’s regulatory tightening has prompted NBFCs to reassess their funding strategies. ECBs have emerged as an attractive alternative, offering liquidity at competitive rates. However, such borrowings also come with risks, including currency fluctuations and interest rate volatility. Shriram Finance’s decision to opt for a multi-currency structure mitigates some of these risks by diversifying its exposure across different currencies.

Challenges and Outlook
While the deal marks a significant milestone for Shriram Finance, it is not without challenges. Currency risks remain a critical concern, especially given the volatility in exchange rates. The company’s ability to effectively hedge these risks will determine the net cost of borrowing. Additionally, the rising cost of capital globally could impact profitability margins in the long run.

On the operational front, the success of Shriram’s diversification strategy will depend on its ability to scale its MSME lending portfolio while maintaining asset quality. The MSME sector, though lucrative, is inherently risky due to its vulnerability to economic cycles.

Despite these challenges, the outlook for Shriram Finance remains positive. The company’s strong track record in the CV financing space, combined with its proactive approach to funding and diversification, positions it well to navigate the evolving landscape.

Conclusion
Shriram Finance’s $1.27 billion ECB deal sets a new benchmark for Indian NBFCs. It reflects the company’s robust financial health, its commitment to innovation, and its ability to adapt to changing market dynamics. By securing this funding, Shriram Finance is not only addressing immediate liquidity needs but also laying the groundwork for sustainable growth. As the company diversifies its loan book and strengthens its presence in the MSME segment, it is poised to further consolidate its position as a leader in the Indian financial services industry.

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Shriram Finance Targets $1.5 Billion in Overseas Funding

Shriram Finance Targets $1.5 Billion in Overseas Funding

Shriram Finance, a prominent non-banking financial company (NBFC) in India, has announced its plans to raise up to $1.5 billion from international investors in the current fiscal year (2024-25). This strategic move marks a significant step towards diversifying its funding sources and bolstering its financial resilience in the face of recent regulatory changes.

The decision to seek international capital is primarily driven by the Reserve Bank of India’s (RBI) mandate for lending institutions to allocate more capital for loans extended to NBFCs. This regulatory change has increased the cost of domestic borrowing, making it more challenging for NBFCs to secure affordable financing. By tapping into the global capital markets, Shriram Finance aims to mitigate the impact of these regulatory changes and secure funding at potentially more favorable terms.

Shriram Finance is targeting to raise between $1.25 billion and $1.5 billion through a combination of loans and bonds placed in the international market. The company has already secured $300 million of this amount and is actively pursuing additional funding in the coming months. This strategic approach demonstrates Shriram Finance’s confidence in its ability to attract foreign investors and its commitment to achieving its ambitious fundraising goals.

The company’s decision to diversify its funding sources is a testament to its prudent financial management. Prior to the planned overseas fundraising, Shriram Finance had a well-balanced funding portfolio. Shriram Finance’s total liabilities were approximately 24.8% bank borrowings, 8.3% foreign currency loans,and 5.8% bonds. This diversified approach has provided the company with a degree of financial flexibility and resilience in the face of changing market conditions.

The RBI’s regulatory changes are expected to have a more significant impact on smaller NBFCs with a higher dependence on domestic banks. These institutions may face challenges in securing affordable financing due to their lower credit ratings and limited access to alternative funding sources. Shriram Finance, with its strong credit profile and diversified funding strategy, is well-positioned to weather the storm and capitalize on the opportunities presented by the evolving regulatory landscape.

Shriram Finance is confident in its growth prospects, even in light of recent regulatory changes. The company anticipates a 15-16% increase in its assets under management (AUM) in the quarter ending September 2024. However, this growth is expected to be slower than the previous quarter’s 21%, which was driven by a surge in lending for large commercial vehicles.

Looking ahead, Shriram Finance’s successful fundraising efforts and continued focus on diversification are likely to strengthen its financial position and enable it to pursue strategic growth initiatives. Shriram Finance’s future success hinges on its ability to effectively adapt to and benefit from the changing regulatory landscape.

While Shriram Finance’s overseas funding plans offer significant promise, there are several factors that could influence the outcome. These include fluctuations in global interest rates, changes in currency exchange rates, the regulatory environment in the countries where Shriram Finance plans to raise funds, and the overall sentiment among international investors towards emerging markets.

Shriram Finance’s decision to raise up to $1.5 billion from overseas investors is a bold and strategic move that reflects the company’s commitment to growth and financial resilience. By diversifying its funding sources and tapping into the global capital markets, Shriram Finance is positioning itself to navigate the challenges and capitalize on the opportunities presented by the evolving regulatory landscape. The successful execution of its fundraising plans could pave the way for further expansion and solidify Shriram Finance’s position as a leading player in the Indian NBFC sector.

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Shriram Finance Business Update Q1FY24

Shriram Finance Result update Q1FY24

Overview: Shriram Finance, a key constituent of the Shriram Group conglomerate, is a prominent non-banking financial company (NBFC) in India, specializing in a wide range of credit solutions including commercial vehicle, two-wheeler, car loans, home loans, gold loans, and small business financing. The conglomerate underwent a strategic consolidation in November 2022, merging Shriram Transport Finance, Shriram City Union Finance, and Shriram Capital to form Shriram Finance. This merger solidified its position as one of the largest NBFCs in the country with an impressive Assets Under Management (AUM) of INR 1,85,683 crore.

Operational Presence :

 As of June 30, 2023, Shriram Finance boasts a robust presence with an extensive network of 2,930 branches across India. The company’s workforce stands at 66,343 employees, servicing a substantial customer base of approximately 7.54 million. This extensive reach covers rural, semi-urban, and urban areas, thereby facilitating a comprehensive market outreach.

 Market Penetration and Position:

Shriram Finance holds a dominant position in the market for second-hand truck financing. Despite this, the market remains under-penetrated, with around 55-60% still served by private financiers and money lenders charging high-interest rates. This presents an opportunity for formal players to incrementally enhance their market share. Shriram Finance, leveraging its domain expertise, is strategically positioned to capitalize on this potential, thus cementing its foothold in the industry.

Financial Performance:  

In Q1FY24, Shriram Finance exhibited commendable financial performance. Interest income surged by 13.3% YoY (+3.5% QoQ) to INR 76,880 million. Correspondingly, interest expenses witnessed an increase of 18.1% YoY (+7.5% QoQ) amounting to INR 34,875 million. Net Interest Income (NII) exhibited a robust growth of 9.7% YoY, reaching INR 42,004 million. The Net Interest Margin (NIM) contracted by approximately 25 basis points (QoQ) to 8.3%, attributed to declining yields and an uptick in borrowing costs.

Profitability and Efficiency:

The Profit After Tax (PAT) exhibited impressive growth, surging by 25.1% YoY (+28% QoQ) to INR 16,754 million. However, it’s noteworthy that the Cost-Income ratio stood at approximately 31% (compared to the previous year’s ~27%) due to a notable 33% YoY increase in employee expenses. This reflects the company’s focus on expansion and enhancing operational capabilities.

Valuations:

As of June 30, 2023, Shriram Finance’s Price to Book Value stands at 1.60, a notable improvement from 2.2 in FY22. Return on Equity (ROE) and Return on Assets (ROA) exhibited year-on-year improvements of 70 basis points and 30 basis points, reaching 15.19% and 3.08%,

Asset Quality:

A significant highlight of the quarter was the notable enhancement in asset quality. Gross Non-Performing Assets (GNPA) and Net Non-Performing Assets (NNPA) ratios demonstrated improvement, declining to 6% and 3.1%, respectively, from 6.2% and 3.3% in the preceding quarter (Q4FY23). Additionally, the Provision Coverage Ratio (PCR) for Stage 3 loans witnessed a substantial increase of around 240 basis points (QoQ) to approximately 52%, underscoring prudent risk management practices.

Conclusion:

Shriram Finance’s merger-driven consolidation, comprehensive market outreach, dominant position in second-hand truck financing, commendable financial performance, and focused approach towards profitability and asset quality reinforce its stature as a leading player in the NBFC landscape. The company’s strategic maneuvers and operational excellence position it advantageously to harness future opportunities and navigate challenges, further bolstering its credibility and standing in the financial industry.

 

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