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Informist, Friday, Jan. 24, 2025

 

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--Shriram Finance: Used vehicle financing to be good in next 5 years 
--Shriram Finance: See good demand for heavy vehicle in Jan-Mar 
--Shriram Finance: Expect operating expenses to moderate over time 
--Shriram Finance: Green financing vertical to grow gradually over time 
--Shriram Finance: Cost-to-income ratio should come down by 28% in next qtrs 
--Shriram Finance: Would like double-digit growth in AUM in Jan-Mar 
--Shriram Finance: Don't see structural decline in asset quality 
--CONTEXT: Comments by Shriram Finance's management at post-earnings concall 
--Shriram Finance: Expect NIM to recover by 20 bps in Jan-Mar 

 

By Pratiksha and Sachi Pandey

 

NEW DELHI/ MUMBAI – There is no structural decline seen in the asset quality of Shriram Finance Ltd., the non-banking financial company's management said in a post-earnings conference call Friday. "Whatever small aberration is there gets corrected in the fourth quarter (Jan-Mar). I don't really see a structural decline in the asset quality. I feel it is temporary, mainly because of seasonal and cash flow mismatches," it said. 

 

The company's asset quality saw a slight deterioration sequentially, with the gross non-performing asset ratio rising to 5.38% as of Dec. 31, from 5.32% reported as of Sept. 30. The net non-performing asset ratio rose to 2.68% as of Dec. 31 from 2.64% as of Sept. 30. 

 

The Chennai-based non-banking finance company expects net interest margin to improve by 20 basis points in Jan-Mar. "Roughly 20 basis points (of fall in NIM in Oct-Dec) is because of the negative carry we had to bear. So it should improve... also depending on the liquidity push in the current quarter," it said. The company's net interest margin moderated to 8.48% in Oct-Dec from 8.74% reported a quarter ago, and 8.99% reported a year ago.

 

The company's management expects to maintain an assets under management growth rate of around 28% going forward, with a focus on moderating operating expenses. "As for AUM is concerned, we should start seeing growth from this quarter onwards. So we can expect double-digit growth from this quarter," it said. 

 

The company's assets under management rose 18.8% on year to INR 2.54 trillion as of Dec. 31. Of the total assets under management, the shares of the commercial vehicle, passenger vehicle, and micro, small, and medium enterprise segments were 45.5%, 20.4%, and 13.6%, respectively, in the December quarter. The gold loan and personal loan segments contributed growth of 2.2% and 3.4%, respectively, to the lender's total assets under management.

 

The non-banking financier's total operating expenditure including staff costs stood at INR 18.36 billion up 23.46% on year. In Jul-Sept, operating expenses were at INR 17.10 billion.

 

The management also expects to maintain a cost-to-income ratio of around 28% going forward. "There has been some increase in the cost-to-income ratio, which we are confident that in the part that has to come, it should come around 28%," management said. For the quarter ending December, the cost to income ratio of the company stood at 28.59%, as compared to 27.95% a quarter ago and 27.04% a year ago. 

 

On the used vehicle financing front, the management expects demand to pick up over the next three to five years, driven by an increase in the number of transactions. The company's used vehicle financing business has been impacted by limited supply in the market, leading to higher prices and limited transactions, management said.

 

Moreover, the management expects demand for heavy vehicles to pick up in the current quarter, driven by new infrastructure projects. The demand for used vehicles is also expected to increase over the next three to five years, driven by an increase in the number of infrastructure projects and initiatives by the government.

 

The company also announced plans to build a separate vertical for electric vehicle lending, as part of its green financing initiatives. The company expects gradual growth in this segment, with a focus on building a separate supervision and credit policy. "That is something which you are trying but it will be gradual growth. We don't intend to grow very quickly there," the management said.

 

On Friday, shares of the company ended 0.4% lower at INR 527.45 on the National Stock Exchange.  End

 

Edited by Akul Nishant Akhoury

 

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