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Shriram Finance Ltd
Earnings Call Analysis
Q2-2024 Analysis
Shriram Finance Ltd
The company witnessed notable year-on-year disbursement growth of 30.91% and sequential quarter growth of 13.63%. The disbursements for the most recent quarter achieved INR 34,605.61 crores compared to INR 26,434.31 crores in the same quarter of the previous fiscal year and INR 30,454.80 crores in the preceding quarter. Assets under management (AUM) as of September 30, 2023, gained ground by 19.65% year over year and 4.88% sequentially, standing at INR 202,640.96 crores.
The net interest income climbed to INR 4,818.18 crores, marking a 17.38% year-on-year upswing and an 8.55% increase quarter over quarter. An improved net interest margin (NIM) of 8.93% compared to 8.26% in the same quarter last year indicates efficient interest earning strategies. Profit after tax (PAT) exhibited a rise of 12.59% from the corresponding quarter last year to INR 1,750.84 crores, while the earnings per share (EPS) saw an uptick to INR 46.67 from INR 41.53 year on year.
The asset quality appears robust with a reduction in gross stage 3 assets to 5.79% from 6.31% year on year. However, the company's credit cost for the concerned quarter has increased to 2.02% from 1.73% in the comparable quarter the previous year, indicating a higher cost associated with potential credit losses.
The subsidiary, Shriram Housing Finance Limited, has shown remarkable disbursement growth of 60.93%, growing its AUM by 65.23% year-on-year to INR 10,816.03 crores. Profit after tax for Shriram Housing rose by 41.7% year-on-year to INR 48.21 crores, with a significant improvement in gross and net stage 3 asset quality.
The company's total debt stands at INR 155,547 crores, with a diverse mix of financing sources contributing to a robust debt structure. The cost of debt has marginally decreased, and liquidity is sufficient, covering more than three months of liabilities. The Liquidity Coverage Ratio (LCR) stands well above the regulatory requirement at 219.57%, signifying a strong liquidity buffer.
The employee base expanded by 5,050, bringing the total count to 71,373. This quarter saw the cost-to-income ratio improving to 25.63%. Board approval for a dividend of INR 20 per share reaffirms the company’s confidence in its financial health and commitment to providing shareholder returns.
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Ladies and gentlemen, good day, and welcome to Shriram Finance Limited Q2 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Umesh Revankar, Executive Vice Chairman. Thank you, and over to you, sir.
Yes. Thank you. Good evening friends from India and Asia. A warm welcome to you. Greetings to -- and good morning to those who are joining the call from Western part of the world. I have with me today our Managing Director and CEO, Mr. Chakravarti; Joint Managing Director and CFO, Parag Sharma; Joint Managing Directors: Mr. Sunder, Sridharan, Sudarshan Nilesh, Mr. Jilani and Srinivas. Also are present with me Ravi Subramanian, Managing Director and CEO of Shriram Housing Finance Limited; and Mr. Agarwal and Sanjay Mundra, our Investor Relationship Head.
It has been encouraging quarter and first half of the year for Shriram Finance. We are seeing early in our operations of recent merger on the back of introduction of more products across our network. Let me first go to the Indian economy. Indian economy expanded by a robust 7.8% in the quarter ended June '23. The outlook for FY '24 is a growth of 6.5%. This is based on statistics indicating the strong pickup in consumer demand, rural demand as well as steady capital expenditure by the government on infra, which in turn is seeing private sector following the suit.
Manufacturing activity too is seeing a strong growth and [indiscernible] for the month of August registering 14 months high of 10.3%. Purchasing PMI index for the August coming to 58.6%. The economy is therefore seem to be holding up well. Economic activity appears to be gaining momentum, despite global geopolitical uncertainty. Consumer demand appears to be improving further and should be even stronger during the upcoming festival season. The retail inflation in June increased to 7.4%, which was 15 months high.
Now in the month of September, it is already corrected to 5.02%. At the same time, wholesale inflation was negative in July at 1.4%, which is further -- it is now -- it is contracted to 0.26% in this quarter -- this month, which is 6 months in a row which has reduced. RBI in its MPC meeting earlier in this month retained the repo rate at 6.5%, but guided for higher inflation for FY '24 at 5.4% versus earlier indication of 5.1%.
We are witnessing some increase in vegetable price, and that could lead to some increase in inflation in this quarter or maybe next quarter. However, we feel the economy will continue to grow based on the strong rural economy. The monsoon this year was erratic. There were excess rains in July and September. There was also depreciate in June and August. However, long period average is it is a near normal monsoon. The revival of monsoon in September has raised the prospect of helping major kharif crop. And the total area under cultivation was 1,107.16 lakh hectares, which is [ 2.37 ] lakh hectares more than the last year.
Oilseeds in particular had benefited from September's rainfall. The Cabinet Committee on Economic Affairs has increased MSP that is minimum support price for rabi crops for the year '24-'25 recently, which includes wheat, pulses and oilseeds. So the rural economy is likely to do much better in the coming quarters.
The GST collection continued to be robust for the Q2 '24. The GST revenue crossed INR 1.65 lakh crore in July, third highest since GST was introduced and 11% higher year-on-year. In August, GST collection was INR 1.59 lakh crore, and September, INR 1.63 lakh crore, which is fourth highest and 10% year-on-year.
Coming to the auto industry. The auto -- the commercial vehicle sales have been quite robust. In the -- this quarter, the total sales aggregated 2,47,929 units, which was higher than the previous quarter -- the previous year quarter, which was 2,31,991 units, representing the increase of 6.9% year-on-year. Within CV, MHCV grew fastest at 17.6% year-on-year. Sales number 93.796 number against 79.761 units. LCV sales was 1,54,133 units versus 1,52,230 units, a marginal increase. Passenger vehicle increased by 4.7% with 10,74,189 units against 10,26,309 units.
Within the passenger vehicle, the utility vehicles grew faster at 23.5%, indicating utility and the SCV vehicle demand being the higher. This model vehicles grew -- or I should say, degrew to some extent. 2-wheeler sales were flat at [ 45,98,442 ] units against 46,73,931 units. 2-wheeler sales gradually is picking up. What's encouraging is sale of electric 2-wheeler, which was 63,715 units in September compared to low of 45,806 in June post the reduced -- reduction of subsidy.
3-wheeler sales grew very strongly with 1,95,200 units being sold with a growth of 62.2% increase over the previous year. Tractor is continued to grow at 9.4% over the previous year with 2,19,106 units sold against 2,00,316 units in the Q2 of previous year. Construction equipment, again, registering very good growth of 29.26% with 27,444 units against 21,231 units same period last year. One significant event in this quarter is a launch of our Super App, which we have been talking about for last 1 year. The Supper App named Shriram One is now available in both Google Play Store and iOS app store.
We have started onboarding -- initially, we started with our employees using it, then we have started onboarding our existing customers. And slowly, it will be introduced to a large number of our customers, which gives them a solution, including the loan repayment, investment, insurance, credit scores and many other utility functions, which will make them even to do social networking, shopping and utility payments. Now I request Mr. Chakravarti to take forward the opening remarks.
Good evening, ladies and gentlemen. Thank you, Umesh. I welcome all of you to our Q2 FY '24 earnings call. We declared our results for the quarter earlier today, and I trust you have had the opportunity to pursue them and related investor presentation, which have -- which has been posted on the website of the stock exchanges.
As our Executive Vice Chairman said, despite Q2 traditionally being a quiet quarter, we have -- this quarter has been encouraging for us. We registered a disbursement growth of 30.91% year-on-year and of 13.63% quarter-on-quarter. Disbursements in quarter 2 of this year aggregated to INR 34,605.61 crores versus INR 26,434.31 crores in Q2 FY '23 and versus INR 30,454.80 crores in Q1 FY '24.
Our assets under management as on 30th September 2023 registered a growth of 19.65% over Q2 FY '23 and 4.88% sequentially. Our AUM stood at INR 202,640.96 crores as against INR 169,359.08 crores a year ago and INR 193,214.67 crores a quarter ago. Our net interest income in quarter 2 FY '24 registered a growth of 17.38% year-on-year and 8.55% quarter-on-quarter. We earned a net interest income of INR 4,818.18 crores in Q2 this year as compared to INR 4,104.86 crores in Q2 FY '23 and INR 4,438.68 crores in Q1 FY '24.
Our net interest margin was 8.93% as against 8.26% in Q2 FY '23 and 8.33% in Q1 FY '24. Profit after tax grew by 12.59% in quarter 2 FY '24 over quarter 2 last year and by 4.5% over quarter 1 FY '24. We registered PAT of INR 1,750.84 crores for Q2 FY '24 as compared to INR 1,555.11 crores in Q3 FY '23 and INR 1,675.44 crores in Q1 FY '24.
Our earnings per share for the quarter stood at INR 46.67 as against INR 41.53 in Q2 FY '23 and INR 44.73 in Q1 FY '24. On our asset quality, the gross stage 3 in Q2 FY '24 stood at 5.79% and net stage 3 at 2.8%. These numbers show an improvement over the corresponding numbers of 6.31% gross and 3.32% net in Q2 FY '23 and over 6.03% gross and 2.96% net sequentially. Our credit cost for Q2 FY '24 stood at 2.02% as against 1.73% for Q2 FY '23 and 1.62% for Q1 FY '24.
Our cost-to-income ratio was 25.68% in Q2 this year as against 24.2% recorded in Q2 FY '23. Our cost-to-income ratio in Q1 FY '24 was 27.34%. Regarding our subsidiary, Shriram Housing Finance Limited, Shriram Housing Finance Limited registered a disbursement growth of 60.93% to INR 1,688.30 crores as against INR 1,049.10 crores in Q2 FY '23. Shriram Housing assets under management as on 30th September exhibited a growth of 65.23% year-on-year and 13.38% sequentially. Our AUM stood at INR 10,816.03 crores at the end of Q2 FY '24 as against INR 6,545.92 crores in Q2 FY '23 and INR 9,539.20 crores in Q1 FY '24.
Shriram Housing's net interest income registered a growth of 51.99% in Q2 FY '24 over Q2 FY '23 and 14.27% over Q1 FY '24. Net interest income for the quarter 2 FY '24 was INR 97.43 crores as compared to INR 64.11 crores a year ago and INR 85.27 crores a quarter ago. Shriram Housing Finance registered a profit after tax growth of 41.7% in Q2 FY '24 over Q2 FY '23 and 5.65% over Q1 FY '24. PAT for the second quarter of this year was INR 48.21 crores as compared to INR 34.03 crores for Q2 FY '23 and INR 45.64 crores for Q1 FY '24. The EPS stood at INR 1.48 against INR 1.05 in Q2 FY '23 and against INR 1.40 in Q1 FY '24.
Shriram Housing's gross Stage 3 for the Q2 FY '24 stood at 1.08% and their net Stage 3 came in at 0.83% [indiscernible] numbers were 1.52% on gross basis and 1.15% on net basis in Q2 FY '23 and at 1% gross and 0.75% net in Q1 FY '24.
I shall now request our Whole Time Director and CFO; Mr. Parag Sharma, to inform you about our resource raising activities, after which Our Joint Managing Director, Mr. Sunder, will brief you about our accounting aspects.
Hello, everyone. On the liabilities, total debt stands at INR 155,547 crores, which is an increase of INR 3,500 crores from the previous quarter. The breakup of the debt is 25% coming from retail FD, which is close to around INR 40,800 crores. The capital market -- domestic capital market is 21%, which is INR 35,000 crores. The ECB is both in loan and bond format is around 13% of our liability, which is INR 21,500 crores. Securitization, which is for -- largely for priority sector assets is 15% of our liabilities and quantum-wise, INR 25,000 crores. Term loan from bank institution is 26% of liabilities at INR 43,170 crores. The cost of debt has marginally come down from 8.89 to 8.87 for the -- as of period ended September '23. The incremental cost of fund is around 8.7%. The liquidity as of September was INR 15,600 crores, which is more than the liability for next 3 months, which is close to around INR 13,000 crores, which is close to around 3.5 months of liability repayment.
The LCR ratio stands at 219.57% against regulatory requirement of 85% [indiscernible] by December '23. And the overall borrowing for the quarter has been around INR 21,000 crores [ versus ] INR 18,000 crores in the previous quarter. The debt to equity stands at 3.59% versus 3.6% for the previous quarter. ALM surplus, all buckets have been positive as in past and surplus up to 1 year is in excess of INR 28,000 crores versus close to around INR 27,000 crores in the previous quarter.
We have been raising ECBs. And in the calendar year till now, we have been close to around INR 980 million of ECB borrowings, largely in the bond format. Recently, we have concluded 400 million of ECB loans. With this, I hand it over to Sunder for his [ comments ].
Employee count as on 30 September was 71,373 against 66,343. In June quarter, we have increased our employee count by 5,050. The cost-to-income ratio as on for the quarter September was 25.63% as against 27.34% in the previous quarter. And coming to the ECL numbers in Stage 1, the PD was 7.89% as against 8.05% in the previous quarter. And Stage 2 PD was 18.21% as against 18.88% in the previous quarter. And the LGD was 41.39% in the September quarter as against 42.32% in the June quarter.
The Board also approved the declaration of dividend of INR 20 per share, that is 2,200% dividend was declared in the meeting earlier today. With this, we hand it over to the -- the forum open for any questions.
[Operator Instructions] The first question is from the line of Mahrukh Adajania from Nuvama Wealth.
Congratulations. Sir, if you could talk us through a bit through your margins, do you see this level sustaining? I know you called out the marginal cost of funds, but do you see this level sustaining? And the share of CVs has come down. So any explanation?
See, the net interest margins have improved, one is the liquidity, which we are maintaining at 4, 5 months, now which has got down to 3 months. That is -- negative carry is reduced. That's one of the reasons. And also the certain products, which gives higher yield, we have been able to increase it, that also has given. So the product mix and reduction of the negative carry. That is the reason for the expansion of funding. It should continue depending upon the product mix what we lend. That is one.
And on CV, we have grown 12%. In fact, if you recall, we have been telling that CV will continue to grow between 12% to 15%. And the other products will grow faster. That's the strategy we have adopted, and we are going as per the strategy. So CV will continue to grow and continue to be remain main stake. But the other products will continue to grow faster.
But here, if you observe, the passenger vehicle have grown faster. So it is between the passenger and CV. The passenger has taken a little faster growth because of the bigger demand coming from Tier 2 and 3 towns for passenger vehicles. So overall, I feel the growth of all segment is continued to remain strong.
And the share of new CVs?
New CVs, we are taking a position on new CV. It is continued to remain reasonably strong. In fact, we started going on new CV in the month of -- in the quarter of -- last quarter, then continued in the first quarter and now also it continued to grow. But it will not be a significant number overall
Okay. But the share would have reduced this quarter?
Marginally reduced because other products have grown faster. That's -- otherwise, it is continued to grow at the same level.
Next question is from the line of Avinash Singh from Emkay Global.
A couple of questions. First one, I mean, if you can sort of again -- on yield side. So yield seems to have improved a bit. I mean -- so of course, there is some shift in product mix. So what sort of a product mix in the sort of a new old composition or the other segment like your PL or gold loan that had driven up the yield. So if you can just help us understand what led to the sort of improvement in asset yields? That's one. And second, in the credit cost of close to INR 1,100-odd crores numbers, if you can help us understand what sort of right of get? Two questions.
So on the product -- this is Chakravarti here. So if you look at the growth for the 6 months compared to last year, the outliers, I mean, in the sense, the highest growth has come from passenger vehicles, MSME, gold and of course, personal loan also, which are basically slightly higher-yielding products compared to the commercial vehicle. Out of the total disbursement of commercial vehicle, probably about 10%, 12% would be new vehicles and rest of it is old vehicles. So the yields there, I would say the overall yield growth has come because of the MSME -- increase in MSME, gold and the personal loan products. And as far as the credit cost is concerned, Sunder?
Yes, the write-off during the quarter was INR 839 crores and the provision was INR 289 crores, totaling to INR 1,128 crores.
You said INR 289 crores is a provision, INR 839 crores...
INR 839 crores of write-off and INR 289 crores of provision.
Okay. Okay. And that yield improvement we're talking more from quarterly sequentials. I mean, from Q1 to Q2, was also improved, right? I mean, if I see CV has gone down, PV has gone up a bit. I mean -- yes, and personal and others have largely been stable. So...
The numbers I gave you were over the last 2 quarters.
Next question is from the line of Shreepal Doshi from Equirus Securities.
Congrats on a good set of numbers. Sir, my question was pertaining to yields again. Could you please highlight the rate hikes that we would have taken in the last 3 to 6 months for CV and PV segment?
No, we have not taken any rate hike there. We have held our rates. It's just a change of mix of product that has helped us in the yield side.
Okay. So sir, what is our pricing in the new CV and UCV and PV segment currently?
It ranges -- the new CV ranges anywhere from 11% to 13%. And old CVs would be, again, 13% to 15%, 16%.
And MSME?
MSME would be, again, some thing, 14% to 20%.
Got it. Got it. Sir, so...
It's a range. Depending on the security, the customer profile, it's a range.
Right, right. Sir, just on margin guidance front. So we were earlier anticipating that for the year-end, we would see 8.5% margin. But with this liquidity related change in approach, like we've brought down the liquidity on balance sheet as well as a change in product mix. So where do we see the margin moving for the year-end?
We would like to continue with our guidance on 8.5%. But yes, depending upon the market situation, it can vary a little. So it should be anywhere between 8.5% to 9%.
Okay. Okay. And sir, just last question. During this quarter, we've added 5,000 employees. So is that -- is it onboarding of new employees only? Or is there anything else?
It's onboarding of new employees only.
As in from the fresh employee pool from the
Mostly -- majority of them, 90 -- 95%, 97% of them are feet on the street.
Okay. Okay. For sales through. Okay. Got it. And good luck for the next quarter.
Next question is from the line of Gaurav Kochar from Mirae Asset.
Congratulations on the quarter. Sir, three questions from my side. Firstly, on -- again, margins. Here, I think the level of liquidity today is around INR 10,000 crores, which is 6.5% of your borrowings. So going forward, you expect -- do we expect similar kind of liquidity now that will maintain probably 6%, 6.5% of borrowings, which is essentially the 3-month liquidity cover?
Yes. That's a policy of the company, and we'll maintain that -- maintain it.
Got it. Got it. And just on this, LCR ratio, I think you reported 2 19. Last quarter, it was 2 02. So despite the liquidity coming down, the LCR has remained or in fact, improved. Is it largely because of lower outflows in the next 30 days, the way it is calculated?
Yes, correct.
Okay. So for a normalized outflow, let's say, maybe next 30 days outflow may not be significant. But it's a normalized outflow, what could be the like-to-like liquidity coverage ratio?
It will be around [indiscernible] what we would maintain.
Okay. Okay. So there will still be much above the required levels. Sure.
Correct.
And coming to the cost of fund, I -- sorry, I couldn't catch the stock cost of fund. I got the incremental cost of fund, which was 8.7%. What is our stock cost of fund today?
8.87%.
8.87%. Okay. So going forward, I mean, the margin trajectory, as we speak, 8.9% is what you did in this quarter. And if the incremental cost of fund is lower than your stock cost of fund, what should break down the margins from here? Are you seeing some bit of moderation on yields?
Well, I think as of now, there have been some increase. The incremental funds what we are now seeing coming in the next few months should be between -- should be around 8.75% to 9%. So I don't expect the cost to come down. It should continue to be at around this level only between 8.8% to 9% is what I foresee.
Okay. No, the reason I'm asking is what's the reason for holding on to the guidance of 8.5%, given that we've already levered 8.9%. Is it like more conservative? Because from the data, I don't see that margins falling from here.
No, it is -- basically, you see in the last quarter, we will -- definitely, more demand will be there for new vehicle. Then definitely, there will be some shift in the mix. So therefore, we are giving a conservative guidance.
Okay. Sure. Sir, on credit cost -- second question. On credit cost, if I look at the Stage 1 ECL cover, that has gone up 20 basis points from 2.9% to 3.1%. And that has led to increased credit cost of around INR 260 crores. I just calculated. Any reason to increase the PCR on standard assets? I think most of the NBFCs work at 70, 80 basis points on standard assets. Why are we keeping 3% -- 3.1% kind of cover on our standard assets?
Based on the historical data and also, we keep stepping our -- doing a stress test on the portfolio. And this is that. And the stress that when we do, it's into the inflation and CPI of the country. And that there is movement in the requirement of the PD -- LGD and PD.
Okay. Because 3% is significantly higher than what we used to keep earlier and it's higher than all other NBFCs. So -- okay. Sure. So you would like to keep this at 3% kind of a level, increase...
Around this level, yes. That's what we expect.
Okay. Okay. Because if I look at the improvement in Stage 2 and Stage 3 assets, that's also an outcome of strong macros again here. That is kind of counterintuitive because if you're...
No, that will -- yes, you're right. But the improvement in the quality of the assets will get reflected in the subsequent periods only because we're taking the last 5 years data. So this data will get added and then when we are again rerunning for the next year, then this impact may be better.
Okay. Sir, final question, sir, is on loan -- on the AUM growth. Today, in this quarter, we have delivered 20% growth. YTD growth is around 9%. And sir, you -- I mean, Umesh sir had always said and always maintained that 2H is better than 1H in terms of disbursement, broadly 60-40. In that context, I mean, your growth guidance of 17%, 18%, I mean, can we not do 20% or more in this year, given that you've already done 20%?
We always would like to grow faster. But -- see, the economic condition and the GDP growth, both will determine the credit demand. So we don't want to push beyond the -- what the economy needs. So we are always giving a conservative number, but there is a scope to grow. We will grow more than 20% also. So we are not hesitating, but the economy has to take that kind of a growth. So we are quite, I should say, very conservatively giving you the estimation.
Perfect, perfect, sir. Congratulations again to the team for the quarter and all the very best.
Next question is from the line of Abhijit Tibrewal from Motilal Oswal.
And congratulations on good quarter. Sir, first, if you could help me with two data keeping questions, if you could just -- am I audible?
Yes, yes.
So first, if you could just give the disbursement mix? And if Sunder, sir, can just repeat LGD number that you gave out in his opening remarks?
Yes. The PD for Stage 1 is 7.89% in the current quarter as against 8.05% in the previous quarter and the PD for Stage 2 is 18.21% in the current quarter as against 18.88% in the previous quarter, and LGD for the current quarter was 41.39% as against 42.32% in the previous quarter.
Okay. And the disbursement mix?
Disbursement, we...
Disbursement, Umesh, if you...
Okay. So we have disbursed totality INR 34,605 crores in the current quarter. The CV was INR 1,782 crores; passenger vehicle, INR 7,379 crores; construction equipment was 1,978 crores; farm equipment was INR 550 crores; MSME was 3,593 crores; 2-wheeler contributed to INR 2,359 crores; gold, 3,051 crores; and personal loans, INR 2,910 crores.
Noted, sir. This is useful. Sir, a lot of discussion has already happened on margins. You already suggested that this kind of margins look sustainable. So just two questions here. One is, would you be able to kind of split this margin expansion of 60 basis points that we have seen sequentially into what came because there is now lower liquidity on the balance sheet and lower negative carry? And what has been driven by increase in the proportion of higher-yielding products in the mix?
Okay. This we'll take it offline. You can contact Mr. Mundra, he will help you out, maybe tomorrow.
Sure, sir. And sir, any one-off from the merger accounting in the NII that we reported?
No, no. Nothing. All of the one-offs are over. There is nothing in the current quarter.
Got it. And sir, lastly, on credit costs, I mean write-offs, I mean, appears slightly higher in this quarter. Anything to read into from an asset quality perspective, any disruption that you saw from these erratic monsoons that we had?
Nothing. See, June quarter, the number of settlements were lower. And the current quarter, the settlements were higher. It was close to INR 15 lakh contacts we closed. And with an average write-off of around INR 5,500 crore. This has been the trend in the previous quarters also. We have been -- per ticket write-off will be around 5,000 to 6,000 is the broad range that we have been observing in the last many years.
Got it, sir. And sir, just one last question. I mean, Umesh, sir, said that we kind of remain conservative in guiding for margins as well as AUM growth. So currently, what's our guidance on AUM growth?
See, our -- the year beginning guidance of 15% will broadly hold good. But since we have already grown at around 18% year -- on 18%, 20% year-on-year, the second half also should be able to -- we should be able to grow at similar level. See, it also depends upon last year's growth. So year-on-year, when you compare the previous year's comparable, we need to see. So I think 18%, 20% is something good indication for the rest of this year.
Next question is from the line of Viral Shah from India Infoline.
Actually, I had a question in terms of the personal loans. So of course, within the entire product suite that you have, the [indiscernible] products, as you mentioned, they are driving the growth for at an overall level. But within that, the share of personal loans is also increasing. So in that context, can you give us some more color on, a, the kind of customers you are targeting, some flavor around what the ticket size like?
And secondly, also, what's the progress in terms of your partnership with Paytm? Have you forged partnerships with any other fintech platforms? And like what's the share of those loans?
So okay, as far as personal loan is concerned, today it is 100%, targeted at my existing customers who have finished at least 1 cycle of loan with me. Okay. So if you look at the disbursement of the last quarter, which is INR 2,900 crores, out of which almost 30%, 35% of the customers who are people who have already taken 2-wheeler loan and a personal loan. And now again come for a second personal loan, which is basically they've closed 2 loans, they come for a third loan, repeat customers.
I mean, the rest of it is 2-wheeler customers who have finished a cycle that they've finished their loan and they came for that. So average ticket size, and this is for the first time in the sense that 2-wheeler customers who is coming for a personal loan for the first time would be around INR 45,000 to INR 50,000. A customer who was serviced 2, 3 cycles would be around INR 65,000 -- INR 65,000 to INR 70,000. So that is our average ticket size is.
On the yield side, it ranges again depending on the customers' profile also, ranges from 20% to 26%. So as far as Paytm is concerned, the tech integration is in the process. We should be able to complete the tech integration in the next 2 weeks and start business, one. Second is, we have -- on the tie-up with fintechs, we do have a couple of tie-ups with the fintechs where we tied up with 1 fintech for giving credit to -- extending credit to new to credit customers and a couple of fintechs for supply chain funding.
Okay. Got it, sir. Basically, what's the target you have in terms of scaling up these partnerships with these fintechs, whether it be Paytm or the other fintechs that you mentioned?
As of now, we have not put a target on this. We wanted to see how the business performs for at least 2 to 3 quarters, and then we will take a call on the numbers.
See, Viral, as our customer base increases, the scope for us to give personal loan also increases. So that is how the opportunity will keep coming up.
Got it. And sir, one last question from my end over here. So while I can see the gross Stage 3 number for personal loans, which is around -- has been around 5%, 5.5%. What's the kind of write-off policy over here? And what is the write-off levels that you are seeing currently?
Policy is 100% write-off on...
It's based on the ECL model only. So it depends upon the product. So there is no -- the thing is it goes around the historical data.
Right. So what's the policy for personal loans for write-offs? And what's the level of write-off that we see?
See, beyond 12 months, supposing if it's more than 365 days, then we fully write-off those assets.
Next question is from the line of Shweta Daptardar from Capital.
Congratulations on good set. Sir, just taking you from the previous question, did I get it right? Unique customers to Shriram ticket size in personal loans of INR 45,000 to INR 50,000?
Correct.
Okay. So then just on this, if you could dwell more because there have been concerns in ticket size below INR 50,000. I do understand you just mentioned that most of the customers are 2-wheeler. But especially this first-time customers, how is your experience on ground in terms of quality?
Let me correct you again. They are not first time customers. They have already serviced, INR 60,000, INR 70,000 worth of 2-wheeler loan. So they are not first time customers. So our experience at building them is fine. I think the concern mostly in the market is -- on the smaller ticket is on the BNPL loans, right? And point #2 is, just to let you know, about 85% of my personal loan customers are either self-employed or small businessmen, right?
So most of this money goes towards some small working capitalists. These are basically -- could be our milk vendor. It could be our plumber, electrician, vegetable, fruit seller, these kind of small businessmen.
Okay. Understood. And then what is the ticket size for the second cycle customers you mentioned?
That will be around INR 60,000 to INR 75,000.
Okay. Okay. Sir, my next question is again on new vehicle financing growth. So I remember somewhere last time you did mention that the new vehicle financing growth is also because used vehicle financing customers are getting upgraded. But then it's been more than 3 quarters now that we have been seeing new vehicle financing growth sort of surpassing the used vehicle financing growth.
And if you look at the market, so most of the NBFC and other players have been vying for used vehicle financing market share. Sir, somewhere we are facing the competitive heat or this is by demand?
Sorry, I didn't get your question.
See, first of all, our used vehicle market share, we are not losing. We are actually gaining market share in the used vehicle. So new vehicle, yes, it will upgrade. There are some used vehicle owners upgrade and we do finance. And in the last quarter -- in the previous year -- normally, in the last quarter, more people opted for new vehicles. That is every year, if you see in the last quarter, more people opted for new vehicles. So that's the only thing we highlighted in the previous quarter that because of that new vehicles mix increased. It is not that we are losing our used vehicle market share. And therefore, we are doing new, it is not correct. We are continuing to grow in our used vehicle. And some customers are upgrading to new vehicles.
Right, sir. Yes, that's exactly was my question. And sir, one last question, if I would squeeze in. Any additional provisions you have made again due to stress test this particular quarter, the way you did in Q1?
No additional provision.
Next question is from the line of Kunal Shah from Citigroup.
Congratulations for a good set of numbers. Firstly, again, with respect to write-off, if you can highlight in terms of the segments wherein the write-offs would have been higher, is it more coming in from PL segment or this seems to be more of the vehicle segment itself? So how should we look? And if I heard it right, is this run rate is something which is more kind of a normal run rate of INR 800 crores, INR 900 crores going forward to?
See, we have been guiding credit cost of between 1.5% to 2%. We still expect to be in those levels for the full year. And -- coming to the segment wise write-off that I would suggest that you contact Mr. Sanjay. He'll be able to help you tomorrow.
Yes. No, just a sense of whether incremental whatever was there, was it more of a PL, yes?
Kunal, I would like to tell you, see, there is a newspaper item saying that the personal loan having -- low-ticket personal loan having higher risk is something which is playing on all of your mind. I would like to clarify here, we are not in open market for selling our personal loan. We are offering additional loan for existing customer who has already repaid our loan. That means a track record is established, and we know the customer. So we are offering them a personal loan to these customers, if it all, they need any personal -- business needs. This is not for consumption.
This is for business because 80% of our 2-wheeler customers are business people. They need a business loan for working capital or any other expansion -- business expansion purpose. And therefore, this is given. So I would like to stress here that we are not in open market personal loan just like any other player or any other platforms. We are not there. And also, we are not in BNPL market.
True, true. Okay. And secondly, when we look at the provisioning difference now between maybe the overall ECL on Stage 1 and Stage 2, in fact, if you look at it, like Stage 2 ECL has actually come up from 7.85% to 7.18%, okay? So no doubt you highlighted in terms of the LGD and PD assumptions. But what's actually driving that? Is it more of a quality maybe the history which you actually rely on for that calculation that has undergone some change. But at the same point in time, Stage 1, we are seeing the increase of 15 bps out there, yes?
It's more of a mix of the product as well as the ECL model that we run. So it is interdependent all these things and also the historical data. All these factors contribute to that.
See, Kunal, what happens is if you go back the last 5 years, there has been a stressful period in the last 5 years. So some of those also will play when we go into retail model. So if I drop the 5 years and go just for 2 years, then our -- this one will be totally different. So as Sunder said in the beginning, as we go forward in next year, definitely, the -- our calculation will undergo a change. ECL model -- calculation will undergo a change. And the requirement provision will come down.
Okay. Sure. And one last question on housing finance. Doubling of ECL on Stage 2 from 3.5% to almost 7.3% in 1 single quarter. So again, it's more of a change in the assumption, maybe particularly with respect to the PD assumption out there.
Can you repeat, Kunal, again?
No, Stage 2 ECL provisioning in housing finance that has almost doubled from, say, 3.5-odd percent to 7.3% in 1 single quarter. If you look at Slide 38, okay, of the presentation, so I don't know maybe what has led to this. Is it more of a change in PD assumption? And how should one look at the buildup of this stress out there in this portfolio, yes? At the last line, 3.5% to almost 7.3% in 1 single quarter.
Kunal, we haven't made any change in the ECL assumption. So I will take this and get back to you.
Yes, Sanjay will get back to you, yes, yes.
Next question is from the line of Piran Engineer from CLSA India.
Congrats on the quarter. Firstly, I just wanted to understand that we've added 5,000 employees this quarter, but our employee OpEx is absolutely stable. So any one-offs, either last quarter or this quarter?
So the previous quarter had the change in the gratuity assumption. And hence, the cost was higher in the previous year. This is more or less a normalized one.
Okay. Sir, can you remind us how much that amount was?
I don't have it right now. Maybe you can contact Sanjay. He will help be out tomorrow.
Okay. Okay, sure. Secondly, just getting back to personal loans, I wanted to understand whether we started cross-selling it to Shriram Transport's customer? Or it's still within the customer ecosystem?
Shriram Transport customers, typically, they need a loan for, say, buying a tire or a battery or fuel. We already have those products. So pure-play consumption personal loan, we have not yet started.
But we intend to or that those 20, 25 lakh customers are out?
It depends on -- say, we intend to, but it will depend on the customers' earning and repayment ability. We will not -- it will not be a preapproved loan that we are going to push.
Got it. Got it. And just sir, lastly, on the same thing because a lot of our PL customers are ex 2-wheeler customers. But when I noticed our PL GNPAs are higher than 2-wheelers. So what would explain that? Like a repeat customer having a higher delinquency than a new customer?
It is just that on a 2-wheeler loan, the people feel that it's a secured loan. They have an asset that they have lose -- they have a lose -- they may lose, whether we're [indiscernible] lot of frustration once they start getting a delinquent, it takes a lot of frustration to collect the money.
See, basically, 2-wheeler loan is average 18 months to 24 months. This personal loan will be around 12 months. So it -- I mean...
Sorry -- Sir, you've gone...
Sorry. So basically, it's just that it's a nature. That's why the reason why it's called personal loan. So it's not a secured loan, so people also tend to take it a little easy. So we need to work much -- that much harder.
Next question is from from Securities.
I have a couple of questions then. Firstly, congratulations on a very strong set of numbers. Sir, first question is on very strong consistent growth in used passenger vehicle portfolio. Now can you reason the growth? Or can you give more color with respect to what kind of vehicles in these portfolios? Which models are growing faster? And secondly, what is the nature of demand? Is it more replacement in nature? Or is [indiscernible] And thirdly, you can also call out the role of what is the value growth versus volume growth in this portfolio?
See, as of now, the ticket size is definitely a larger one. So that is definitely helping in the vehicle portfolio growth, especially in the passenger vehicle. Diesel prices have gone up by 30% to 40%. So that is really helping the growth. But otherwise also the reach has also increased for us. The number of branches to offer the passenger vehicle and the commercial vehicle has increased. But passenger vehicle is easy sell for most of the erstwhile top branches. Therefore, the passenger vehicle growth is faster.
All right. And sir, again, and even MSME growth has been growing, the growth has been pretty strong. I know that we've been gradually -- our strategy has been to take it to the erstwhile Shriram Transport branches for cross-sell. So can you call out what has been the additional growth because of cross-sell that we are starting to see? That's number one. And whether -- is there any roll off ticket size increase in this growth being reported?
So ticket sizes absolutely not grown. And we are also -- we also monitor very closely the ticket sizes, which is we are very conscious of what we do, one. Second is the growth is also because of -- as you said, you're right that we have taken into places where the commercial vehicle branches are also there. So I would say an additional 10%, 12% growth has come under the loan because of the introduction of this loan within in the commercial vehicles branches.
Okay. And just last question is on asset quality. Again, we have seen consistent improvement in our portfolio construct. I mean, Stage 1 and Stage 2 percentage have improved, which also means that collection efficiencies are going up. So can we be -- now going into second half, which is generally pretty strong, can we assume that the fresh delinquency creation and the forward flows will -- can be even better and hence, the credit cost would be well within the range?
Yes. We anticipate that it will be stable. And definitely, it should improve by a few more basis points.
Next question is from the line of Chandrasekhar Sridhar from Fidelity International.
If I were to look at your yields and advances over the last 12 months, if I -- this time last year, you were carrying 5 months of liquidity, now down 2, 3 months of liquidity. And obviously, the business mix has shifted with some of these personal loans picking up pretty substantially MSME. But it seems that adjusted for that, there'll be no -- on an individual product basis, basically, you are not taken up yields in an environment where we have had a pretty substantial rate hike cycle in this entire period. Are we -- on individual product basis, are we finding it tougher now to take yields to where they were earlier or what we used to do earlier?
See, It's not a question of finding a tougher not. We feel the products are priced right. So we don't find a reason why we should increase the rates -- push the rates up. And we also have to keep the market in mind. The other players of the market in the mind at what rates they are operating and what rates we're operating. In fact, if you look at our 2-wheeler -- offering of 2-wheeler and MSME, we are actually at a slight premium compared to other players.
2-wheeler vehicle is a very competitive product. We are at least 100 to 150 basis points more than what our competitors charge. I think they are rightly priced. Unless we have a pressure on the NIMs, we will not look at increasing the rates.
So I mean, essentially, it means that there is competitive pressure. I mean, competition is basically taking you keep where they are like-for-like even in a rate hike [indiscernible]
No, I'm sorry. I didn't say that. What I'm trying to get at is, I think the yields that we are getting are very comfortable yields and the NIMs are also comfortable. So I'm not in a -- I think we are in a finance business where this is pretty good. I think -- and the NIMs are very good. So we are not looking at pushing this further.
Okay. Okay. Understood. And when -- while the unsecured business has grown 10% quarter-on-quarter, and you did speak about a little earlier about thinking or contemplating what you would do with cross-sell on PL for even maybe Shriram customer. Just wanted to be sure that you are keeping this within the ambit of capping unsecured at 5% of overall AUM. Is that something? Or has that -- the guardrail, which you put in internally, have they shifted to maybe a higher unsecured business?
No, no, we have not changed. That policy has not changed.
Right. So this 4.3 goes to 5 eventually and then you want to cap it somewhere there?
Yes. 4.3 by the time it reaches 5, the overall pie will become [ desert ]. So there is -- we hope that there will always be a gap.
Right. And can I just check on the OpEx. Obviously, you've added a lot of people in the last 8 to 12 months. Just some sense on how many more are you going to add or the cross population across branches for the gold loans the number of people which you add, is that largely now done? And on cost to income, we get some leverage at some point in time? Or this is what we should be thinking is the cost to income on a steady-state basis?
The cost to income will be around 26% to 27% that we have been guiding, and we continue to be sticking to the same number. And on the employee addition, we just...
We may add another 1,500 to 2,000 people in the next 6 months. Obviously, we are also opening up -- the collection centers, we have about 800 service centers. Some -- we are planning to convert some of these service centers into full-fledged branches. But also, we are -- we have not yet fully exploited the network for both MSME as well as gold loan products. So it could be an ongoing process, but I think it will be at least another 3 to 4 quarters before we look at capping manpower, pushing for...
So the operating leverage basically is still in somewhere middle of FY '25 -- second half of FY '25 into '26, the cost to income starts coming off?
Yes. But I think, as Sunder said, we are actually looking at a 26% cost to income. So it should stay there.
Next question is from the line of Punit from Macquarie Group. Due to no response, we'll move on to the next participant. Next question is from the line of Ankur Jain, individual investor.
I have a question on the ROE. So for the last 2 quarters, the company has been reporting ROEs of 15% plus. So my question is, is there a -- is there any target of ROE that we have in mind? I mean some range of ROE over 3- to 5-year period that we want to target?
16% to 18% is our target.
Okay. And what would be the road map for that, if you could help?
So next year, we should touch 16%, then it will improve to 18%.
And does it include increasing the debt-to-equity ratio?
Yes. As we grow, there will be an increase in debt-to-equity ratio.
Next follow-up question is from the line of Punit from Macquarie Group.
Just on the yield bit, what was the increase in yield and cost of funds this quarter, if you could highlight that?
Cost of funds has not gone up. On the yield...
See, around 30 to 40 basis point increase in the yield and some decrease in the cost of funds. And we also got an advantage of the negative carry being lower because of the annual [indiscernible] of securities.
Yes. So on that bit also your incremental cost of funds was lower than your reported cost of funds. So you said that the product mix might drive a decline in margins, would that be because the way we are calculating it looks like margin trajectory should be upwards even after the 3.9% you've reported. So any comments on that?
No, I think what Umesh mentioned was that in the third and fourth quarter typically, the new vehicle sales goes up. So the new vehicle funding will go up. That could -- basically, since the new vehicle are lower yield products. If he said the NIMs could be, he says we'll stand by guidance of 8.5% NIMs. That is what -- yes.
Got it. Got it. Okay. Okay. And could you highlight what was the used vehicle and new vehicle growth this quarter? I'm sorry, I missed the opening comment.
That I think Sanjay will give you. I have a CV -- CV as a whole have grown by about 14% to 15%.
Okay. Tomorrow, you can just contact Mr. Sanjay. He will help you out.
Ladies and gentlemen, we'll take that as a last question. I now hand the conference over to Mr. Umesh Revankar for closing comments.
Yes. Thank you for participating in the call. We do expect the next second half of this year will be a robust. Already, the indication is that festival demand, combined with cricket fever, is creating a reasonably good credit demand. And with the economy being strong and all other parameters remaining good, we should be able to grow faster in the second half of the year and come with a good set of results next quarter. See you again next quarter. Thank you very much.
Thank you very much. On behalf of Shriram Finance Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.