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Shriram finance company overview

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Equities, Markets, Research, Research Reports, Result Updates - October 28, 2024

Shriram Q2FY25 Loan Book Growth 20% YoY led by CV, PV and MSME segment

Shriram Q2FY25 Loan Book Growth 20% YoY led by CV, PV and MSME segment

Company Name: Shriram Finance Ltd | NSE Code: SHRIRAMFIN | BSE Code: 511218 | 52 Week high/low: 3,652 / 1,851 | CMP: INR 3,093 | Mcap: INR 1,16,286 Cr | P/BV – 2.37

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 20% YoY (+4% QoQ) to 2,43,043 Cr supported by growth in CV, PV and MSME segment.

➡️Commercial vehicle constitute 46% of the overall loan book, growing by 14% YoY (+2% QoQ) to 1,12,194 Cr. Passenger vehicle segment constitute 20% of overall segment, growing by 23% YoY (+7% QoQ) to 49,000 Cr. While MSME segment constitute 13% of overall segment, growing by healthy growth of 52% YoY (+12% QoQ) to 31,300 Cr. This three segment led the solid growth in overall loan book in Q2FY25.

➡️Rest other segment report good growth but command a low weight in overall loan book. Construction equipment grew at 17% YoY followed by Farm equipment at 28% YoY, 2W at 26% YoY, gold at 12% while personal loan degrow by 6% YoY.

➡️Borrowing overtake the loan growth, increased by 26% YoY (+8% QoQ) to 2,078 bn driven by deposit growth of 23% YoY (+6% QoQ).

Book Growth (As on)  Q2FY25 Q2FY24 YoY (%) Q1FY25 QoQ (%)
Loan 2,43,043 2,02,641 20% 2,33,444 4%
Borrowings (bn) 2,078.20 1,653.40 26% 1,917.50 8%
Deposit (bn) 502 408 23% 474.9 6%

Double digit growth in NII backed by loan book expansion; while NIMS down
➡️NII report a double digit healthy growth of 19% YoY (+4% QoQ) to 5,464 Cr driven by loan book expansion only while NIMs contract for the quarter. NIMs down by 19 bps YoY (-5 bps QoQ) to 8.74% due to the expansion in CoF.

➡️PPOP jump 15% YoY (+3% QoQ) to 3,986 Cr, Operating efficiency benefit lagged as total OpEx increased 20% due to rise in employee cost and other expense.

➡️PAT boost by 18% YoY (+5% QoQ) same in line with topline growth to 2,071 Cr. This growth is only attributed to book expansion.

Years  Q2FY25 Q2FY24 YoY (%) Q1FY25 QoQ (%) Commentry
Interest income  9,814.50 8,216.56 19% 9,362.79 5% Driven by healthy loan book growth 
Interest expenses 4,350.42 3,621.86 20% 4,128.91 5%
NII 5,464.08 4,594.70 19% 5,233.88 4% Loan book support growth; NIMs down 
Other income  282.18 347.89 -19% 234.28 20%
Total Net income 5,746.26 4,942.59 16% 5,468.16 5%
Employee expenses 906.67 790.38 15% 868.35 4%
Other OpEx 853.07 671.38 27% 745.67 14%
Total Opex  1759.74 1461.76 20% 1614.02 9%
PPOP 3,986.52 3,480.83 15% 3,854.14 3% In line with topline growth; OpEx efficiency lagged
Provision 1,234.99 1,128.55 9% 1,187.55 4%
PBT 2,751.53 2,352.28 17% 2,666.59 3%
Tax expenses  680.27 601.44 13% 686 -1%
Tax rate  25% 26% -3% 26% -4%
PAT  2,071.26 1,750.84 18% 1,980.59 5% PAT boost with topline; no OpEx benefit 
PAT% 21% 20% 0% 21% -1%
EPS 55.10 46.65 18% 52.69 5%
No. of equity shares  37.59 37.53 0% 37.59 0%

Asset quality improved – GNPA/NNPA down (47 bps/16 bps YoY)
➡️Shriram’s asset quality has been improved during the quarter as GNPA and NNPA are in downward trajectory. GNPA/NNPA decline 47 bps/ 16 bps YoY while 7 bps/ 7 bps QoQ to stood at 5.32%/2.64% as of Q2FY25. Provision coverage ratio decline by 140 bps YoY while on QoQ up 55 bps to 51.7% vs 53.1% in Q2FY24.

Asset Quality Q2FY25 Q2FY24 YoY bps) Q1FY25 QoQ (bps)
GNPA 5.32 5.79 -47 5.39 -7
NNPA 2.64 2.8 -16 2.71 -7

Valuation and Key metrics
➡️Currently the stock is trading at 2.37x price to book value. NIMs contract by 1 bps YoY and 5 bps QoQ to 8.74% led by the expansion in CoF. ROA disappoint down by 6 bps YoY and QoQ both to 3.06% while ROE rise 69 bps YoY and remain flattish QoQ to 16%. Company capital position CAR down 200 bps YoY to stood at 20.16% but still above the RBI guidelines.

Key metrics  Q2FY25 Q2FY24 YoY (bps) Q1FY25 QoQ (bps)
NIMs 8.74 8.93 -19 8.79 -5
ROA 3.06 3.12 -6 3.12 -6
ROE 16 15.31 69 16.03 -3
PCR 51.7 53.1 -140 51.15 55
CAR 20.16 22.15 -199 20.29 -13

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Weakest performance of Rupee at 87.21 against US dollar
Research, Research Reports, Result Updates - August 23, 2024

Shriram Finance Q1FY25 Reflects Strong growth across AUM, NIIMs & Asset Quality Improved.

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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Q2FY24: Shriram Finance reports robust AUM growth Drives NII soars to 4,594 Cr

Q2FY24: Shriram Finance reports robust AUM growth Drives NII soars to 4,594 Cr

Company Overview:

Shriram Finance, a prominent Non-Banking Financial Company (NBFC) in the retail finance industry, has been a leading provider of financial services in various sectors, including passenger vehicles, construction equipment, MSMEs loans, gold loans, personal loans, and working capital loans. Notably, the company has shown exceptional growth by opening 100 new branch offices in the past year, expanding its reach to 2,975 branches in Q2 FY24, including 1,027 in semi-urban areas, 1,552 in rural areas, and 396 in urban areas. Shriram Finance’s total Assets Under Management (AUM) have impressively crossed the 2,000 billion mark in Q2 FY24, registering a YoY growth of 19.65%. The company serves a vast customer base of 7.71 million individuals across India.

Robust AUM growth crossed 2,000+ bn in Q2FY24:

In Q2 FY24, Shriram Finance achieved a remarkable milestone by crossing the 2,000 billion AUM threshold, demonstrating a substantial YoY increase of 19.65%. The growth was particularly prominent in the passenger vehicles segment, which saw a 32% YoY surge, along with personal loans at 73% YoY, MSME loans at 25.67% YoY, and two-wheeler loans at 22.49% YoY. Notably, passenger and commercial vehicles collectively accounted for approximately 70% of the AUM in Q2 FY24, firmly establishing Shriram Finance’s leadership in commercial vehicle financing.

Segment wise – PL/MSME/PV outperform in Q2

In Q2 FY24, specific segments stood out with remarkable performance. The personal loan (PL) portfolio surged by 73.34% YoY, reaching 88,384 million INR, with a Gross Stage 3 (G3) rate of 5.17%. Similarly, the MSME loan book reached 213,103 million INR, growing by 25.67% YoY, and the Gross Stage 3 (GS) rate stood at 5.42% in Q2. The passenger vehicles loan book registered substantial growth, reaching 396,935 million INR, up by 32.30% YoY, with a GS rate of 6.26%.

Asset Quality improved (GNPA/NNPA), CAR maintained at 22.15% in Q2:

In Q2 FY24, Shriram Finance demonstrated enhanced asset quality, with a reduction in Gross Non-Performing Assets (GNPA) on both YoY and QoQ bases, declining to 5.79%. Moreover, Net Non-Performing Assets (NNPA) also decreased to 2.80% in Q2 FY24, compared to 3.32% in Q2 FY23. The Capital Adequacy Ratio (CAR) stood at a healthy 22.15%, well above the RBI guideline of 15% for NBFCs.

Valuation and Key Ratios:

Shriram Finance’s stock is currently trading at 1.46 times its book value, amounting to 1,234 INR per share at a current price of 1,798 INR. The return ratios improved in Q2, with Return on Equity (ROE) at 15.40% in Q2 FY24, compared to 15.19% in the previous quarter, and Return on Assets (ROA) at 3.14% in Q2 FY24, versus 3.08% in Q1 FY24. The Interest Coverage Ratio stood at 1.64x, indicating the company’s solvency.

Q2 FY24 Results Highlights: Standalone

➡️ In Q2 FY24, the company’s interest income grew by 15.81% YoY (+6.88% QoQ) reaching 8,216 crore INR, while interest expenses increased by 11.98% YoY (+3.85% QoQ) to 3,621 crore INR. Consequently, Net Interest Income (NII) reached 4,594 crore INR, marking a 19.02% YoY (+9.39% QoQ) growth.

➡️ PPOP grew by 16.27%YoY (+11.34% QoQ) to 3,480 Cr mainly due to a decline in the cost-to-income ratio to 25.68%.

➡️ NIMs improved by 60 basis points, standing at 8.93% (PQ-8.33%). This improvement was primarily driven by the outstanding performance of personal loans, MSME loans, and passenger vehicles in Q2.

➡️ PAT surged by 12.59% YoY (+4.50% QoQ) to 1,751 crore INR, attributed to strong AUM growth, NIMs+8%, and operating efficiency, resulting in an Earnings Per Share (EPS) of 46.69 INR for the quarter (PQ-44.68) grew 4.5% QoQ.

 

Conclusion:

In conclusion, Shriram Finance’s Q2 FY24 performance underscores its continued growth and stability in the retail finance industry. With a substantial increase in AUM, improving asset quality, and solid financial ratios, the company is well-positioned for sustained success in the coming quarters, making it a notable player in the NBFC sector.

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