Shriram Finance Ltd
NSE:SHRIRAMFIN
Earnings Call Analysis
Q3-2024 Analysis
Shriram Finance Ltd
Shriram Finance reported an encouraging third quarter, witnessing strong operational dividends post-merger, facilitated by a multi-product strategy across its network. India's economy displayed significant growth, with GDP expanding by 7.6% in Q2 and an estimated growth of 7.3% in 2024. Inflation saw a modest rise with the Reserve Bank of India (RBI) maintaining the key repo rate at 6.5%, while projecting an increase in GDP growth to 7% from 6.5%, signaling a steady liquidity and stable interest rate environment. The rural economy showed robustness with higher crop sowing, and minimum support prices grew by 2% to 7%, promising a healthy economic trajectory going forward.
Shriram Finance experienced significant disbursement growth of 29.21% year-on-year and 9.2% quarter-over-quarter, achieving disbursements of INR 37,787.84 crores in Q3 FY24. The company's assets under management (AUM) increased by 20.70% year-over-year to INR 2,14,233.47 crores. Net interest income grew by 15.04% compared to the previous year, earning INR 5,093.93 crores, and the net interest margin improved to 8.99%. Profit after tax (PAT) saw a 2.33% rise over the previous year, with an earnings per share standing at INR 48.42.
The company's asset quality exhibited progress, with gross Stage 3 at 5.66% and net Stage 3 at 2.72%, improving over previous periods. Credit cost for Q3 FY24 was reported at 2.15%, with a cost-to-income ratio at 25.14%. Shriram Housing Finance, a subsidiary, marked a remarkable disbursement growth of 69.64% and an AUM surge of 67.53% year-on-year. Their PAT also grew significantly by 69.08% over the previous year's quarter to INR 61.52 crores, showing a substantial gain in profitability.
The period under review saw a net increase in the employee count to 73,485. Shriram Finance's overall liability stood at INR 1,77,000 crores, boosted by a diverse liability mix and a total debt cost of 8.96%. The company raised substantial funds through external commercial borrowings, enhancing liquidity and maintaining a liquidity coverage ratio of 256.25%. The incremental cost of borrowing recorded a slight uptick to 8.95%. Shriram is optimistic about holding interest margins at around 8.9% going forward, attributing this confidence to a judicious mix of products and the ability to pass on increased costs.
In conclusion, the board's declaration of a 100% interim dividend showcased confidence in the company's performance and outlook. Shriram Finance appears poised for continued robust growth, with a strategic focus on high-margin, high-yielding businesses such as two-wheelers and passenger vehicles to complement its steady commercial vehicle (CV) financing segment, which is expected to grow between 12% to 15%. Through its meticulous market navigation and sound financial strategies, the company remains resilient amidst economic fluctuations.
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Ladies and gentlemen, good day, and welcome to the Shriram Transport Finance Q3 FY '24 Earnings Conference Call. [Operator Instructions]
I now hand the conference over to Mr. Umesh Revankar, Executive Vice Chairman. Thank you, and over to you, sir.
Yes. Thanks, Sagar. Good evening, friends from India and Asia. A warm welcome to all of you. Greetings, and good morning to those who are joining from the Western part of the world. To present Q3 call today, I have with me: Mr. Chakravarti, Managing Director and CEO; Mr. Parag Sharma, Joint Managing Director and CFO; Mr. Sunder, Joint Managing Director, Head of Accounts. We also have with you, Mr. Agarwal from Shriram Housing. We also have Sanjay Kumar Mundra from our Investor Relations Head.
It has been encouraging third quarter for the Shriram Finance. We are seeing fruitful dividends in our operation post merger on the back of multi-products being offered across our branch network. To first -- if you look at the Indian economy, the Indian economy expanded by 7.6% growth in the second quarter, considerably higher than the consensus estimate. The surge was largely led by manufacturing sector, which jumped 13.9% year-on-year in the second quarter, helped by a few favorable base and improved volume growth.
With the latest number, GDP added 7.7% during the first half of the year as compared to 9.5% a year ago. India's real GDP growth in 2024 is estimated at 7.3% compared to 7.2% a year ago. As per the first advanced estimate released by NSO, which reckons the economy will outperform 7%, even endorsed by the RBI recently.
On the inflation. Retail inflation in December increased to 4-month high at 5.69%, slightly better than expectation but still rose mainly from 5.55% in the month of November. The wholesale inflation also rose to 9-month high to 0.73% for the month of December from 0.23% recorded in the month of November.
RBI, in its MPC meeting on December 8, has kept the key policy repo rate unchanged at 6.5% by unanimous decision. This is the fifth meeting on that -- on trot that MPC decided to maintain the status quo on repo rate. However, RBI raised the GDP growth projection for FY '24 to 7% from 6.5% earlier on domestic demand and higher capacity utilization in the manufacturing sector. CPI inflation projected at 5.4% for FY '24 with Q3 at 5.6%. We expect steady liquidity in the system with stable interest rate environment.
The rural economy and monsoon, as per the union farm ministry data, rabi crop sown in the country was 4.4% higher to 620.62 lakh hectare as compared to 594.62 lakh hectare sown from the previous cropping season. Year-on-year, increase is higher in all crops with wheat being highest, indicating healthy rural economy going forward. The Cabinet Committee has increased the minimum support price for rabi crops in between 2% to 7% for the financial year '24/'25, which includes wheat, pulses and oilseeds.
India's GST collection for the month of December '23 increased by 10.28% to INR 1.65 lakh crores as against INR 1.5 lakh crore in December '22. The December '23 collection, however, was lower than INR 1.68 lakh crores collected in November and even down from INR 1.72 lakh crores from October. It is the seventh time the gross GST collection has increased -- has crossed INR 1.6 lakh crores mark in FY '23/'24. The gross GST collection for the first 9 months of FY '24 increased by 12% to INR 14.97 lakh crores, is higher -- is 12% higher than the GST collection in the year FY '22/'23.
The government spend on infrastructure continued to remain strong with the strong GST collection. Government recently announced that textile ministry has mapped eight sanctioned PM Mitra Parks on PM GatiShakti National Master Plan portal while pharmaceuticals department has reported successful completion of 129 pharma clusters and 23 medical device cluster projects. This, in addition to ongoing road and railway projects, helping better logistics to succeed the agenda of Make in India happen.
Coming to the auto industry. The total CV sales in Q3 '24 was 2.35 lakh units against 2.27 lakh units in Q3 '23 for the -- and for 9 months, it was 6.99 lakh against 6.83 lakh. Within CV, MHCV sales recorded 91,370 units against 85,678 for the Q3 '23. And for 9 months, it registered 9% growth with sales number 2.63 lakhs units against 2.41 lakh units sold. LCV sales in Q3 '24 was 1.44 lakh units against 1.41 lakh units. And for 9 months, it was 4.36 lakhs against 4.42 lakhs.
Passenger vehicle has registered a growth of 8.3% with 10.1 lakh units being sold as against 9.35 lakh units in Q3 '23. For the 9 months, it registered 7.3% with 30.83 lakh units sold as against 28.72 lakh units sold in the same period last year.
Two-wheelers recorded robust 22.6% with the sales of 47.31 lakh units in Q3 '24 against 38.59 lakh units sold in Q3 FY '23. For the 9 months, it recorded a growth of 9.9% with a sales of 134.71 lakh units against 122.58 lakh units sold in the same period last year, indicating strong rural and segmental demand.
Three-wheelers, the Q3 FY '24 registered a strong growth of 62.6% with 1.87 lakh units sold versus 1.39 lakh units sold in Q3 '23. For the 9 months, it recorded 57.2% increase with sales of 5.27 lakh units as against 3.35 lakh units sold in the same period last year, which implies e-commerce and last-mile delivery is growing very fast.
Tractor sales stands at 2.03 lakh units as against 2.16 lakh units in Q3 '23. And for the 9 months, it recorded a growth of 6.8%, with sales of 6.48 lakh units as against 6.06 lakh units sold in the same period last year. We believe both agri activity and income continue to grow further. And that will create increased demand for mechanized farming and better credit demand.
On construction equipment, the Q3 FY '24 registered a strong growth of 29.6% with 33,121 units sold versus 25,555 units sold in Q3 FY '23. And for the 9 months, it recorded a growth of 26.8% with sales of 1,01,798 units as against 80,302 units sold in the same period last year, indicating continued strong infra-related spend and real estate activity.
Now I shall ask my colleague, Mr. Chakravarti, to take through operational performance. Thank you.
Thank you. Hello all. This is Chakravarti here. I welcome all of you to our Q3 FY '24 earnings call. And I trust you have had the opportunity to peruse our results that are posted on the website of the stock exchanges.
We have registered a disbursement growth of 29.21% year-on-year and 9.2% quarter-on-quarter. Our disbursements in Q3 FY '24 this year aggregated to INR 37,787.84 crores versus INR 29,245.26 crores in Q3 FY '23 and versus INR 34,605.60 crores in Q2 FY '24. Our AUM as on 31 December 2023 registered a growth of 20.70% over Q3 FY '23 and 5.7% sequentially. Our AUM stood at INR 2,14,233.47 crores as against INR 1,77,498.02 crores a year ago and INR 2,02,640.96 crores in Q2 FY '24.
Our net interest income in Q3 FY '24 registered a growth of 15.04% year-on-year and of 5.72% quarter-on-quarter. We earned a net interest income of INR 5,093.93 crores in Q3 FY '24 this year as compared to INR 4,427.88 crores in Q3 FY '23 and INR 4,818.18 crores in Q2 FY '24. Our net interest margin was 8.99% as against 8.52% in Q3 FY '23 and 8.93% in Q2 FY '24.
Our profit after tax grew by 2.33% in Q3 FY '24 over Q3 FY '23 and by 3.86% over Q2 FY '24. We registered a PAT of INR 1,818.34 crores for Q3 FY '24 as compared to INR 1,776.97 crores in Q3 FY '23 and INR 1,750.84 crores in Q2 FY '24. Our earnings per share for the quarter stood at INR 48.42 as against INR 47.46 in Q3 FY '23 and INR 46.67 in Q2 FY '24.
On our asset quality, our gross Stage 3 in Q3 FY '24 stood at 5.66% and net stage at 2.72%. These numbers does show an improvement over the corresponding numbers of 6.29% gross and 3.2% net in Q3 FY '23 and 5.79% gross and 2.8% in Q2 FY '24. Our credit cost for Q3 FY '24 stood at 2.15% as against 1.75% for Q3 FY '23 and 2.02% for Q2 FY '24. Our cost-to-income ratio was 25.14% in Q3 FY '24 as against 22.23% recorded in Q3 FY '23. Our cost-to-income ratio for Q2 FY '24 was 25.68%.
Regarding our subsidiary, Shriram Housing Finance Limited. They have registered a disbursement growth of 69.64% over the same quarter last year. Disbursements in Q3 this year were INR 1,698.16 crores as against INR 1,001.05 crores in Q3 FY '23. Shriram Housing's AUM as on 31 December 2023 exhibited a growth of 67.53% year-on-year and 11.18% sequentially. AUM stood at INR 12,025.24 crores at the end of Q3 FY '24 as against INR 7,178.16 crores in Q3 FY '23 and INR 10,816.03 crores in Q2 FY '24.
Their net interest income reached a growth of 33.44% in Q3 FY '24 over Q3 FY '23 and 6.3% over Q2 FY '24. Net interest income for Q3 FY '24 was INR 103.57 crores as compared to INR 77.62 crores in Q3 FY '23 and INR 97.43 crores in Q2 FY '24. Shriram Housing Finance has also registered a profit after tax growth of 69.08% in Q3 FY '24 over Q3 FY '23 and a 27.57% over Q2 FY '24. PAT for the third quarter of this year was INR 61.52 crores as compared to INR 36.38 crores for Q3 FY '23 and INR 48.22 crores for Q2 FY '24.
Their EPS stood at INR 1.88 as against INR 1.12 in Q3 FY '23 and against INR 1.48 in Q2 FY '24. Shriram Housing's gross Stage 3 for Q3 FY '24 stood at 1.01% and their net Stage 3 came in at 0.75%. In comparison, these numbers were 1.15% on gross and 0.87% on net in Q3 FY '23 and at 1.08% gross and 0.82% net in Q2 FY '24. I shall now request our Whole-Time Director and CFO, Mr. Parag Sharma, to talk to you about our resource-raising activities, after which our JMD, Mr. Sunder, will brief you about accounting and regulatory aspects. One thing I would also like to -- I'm very happy to tell you is that the Board has declared a dividend of -- interim dividend of 100% in the just-concluded board meeting. Thank you.
Yes. Good evening, everyone. I'm Parag here. On the liabilities front, total liability stands at INR 1,77,000 crores, which is up by INR 5,000 crores from the previous quarter. We continue to maintain diversity in our liabilities with 24% coming from retail deposits. The capital market is 21% of the overall liability. Securitization continues at 14%. The external commercial borrowing is at 13%. And the term borrowing from banks and institutions is around 28%.
The total cost of debt is 8.96% as of December, which has gone up by around 9 basis points from the September '23 period. We continue to maintain 3 months of liability repayment into liquid assets, which was INR 17,423 crores, which is good enough to meet the liabilities for the new February and March. However, we have raised a substantial portion of external commercial borrowing in January, which was $750 million at 6.625% coupon. And this will enhance our liquidity to the 4 months of liability repayment. So that money has come in last week.
The liquidity coverage ratio stands at 256.25%. And the overall borrowing for the quarter, September to December, was INR 24,337 crores. The ALM surplus up to 1 year, all buckets being positive and surplus up to 1 year, is INR 29,646 crores. The incremental cost of borrowing has slightly gone up to 8.95% now, which was around 8.7% in the previous quarter. The leverage ratio stands at 3.77x versus 3.59x in the previous period ended September.
With this, I hand over to Sunder for his comments.
Good evening, everyone. The employee count as on 31st of December was 73,485 as against 71,373 as on September 2023, an increase of net increase of 2,112 employees. The Stage 3 as on December was 5.66% as against 5.79% in September. The Stage 1 PD was 7.89% as against again 7.89% in the previous quarter. The Stage 2 PD was at 18.25% as against 18.21% in the previous quarter. And the LGD was at 41.45% in December as against 41.39% in the previous quarter.
And with this, I would like to hand it over to the moderator for opening the forum for questions and answers.
[Operator Instructions] The first question is from the line of Mahrukh Adajania from Nuvama.
Congratulations. Sir, my first question is on margins. It has already surpassed your guidance and it has stood steady for the last -- I mean, very strong for the last 2 quarters. And the growth in interest expenses is also on the lower side.
So how do we take margins -- look at margins from here on? I know that an increase in the liquidity cover was mentioned earlier. But just in terms of margins, what range of margins do we now look at? That's my first question.
So I think the margins, we are actually hopeful that we'll be able to hold the margins to around 8.9% going forward.
Okay. So you can hold it here with changing mix, even though costs will rise or...
I mean, we feel that the cost -- interest cost, we don't believe that they'll rise any further. As of now, we -- I mean, we are hoping that it will not rise. But even then, as we put it, since the mix is also slightly altering, we were actually very confident that we'll be able to hold it at 8.9%.
Both mix and our ability to pass on the increased cost, that will give us the confidence of making and keeping this margin, Mahrukh.
Okay, okay, sir. Sir, my next question is on AUM. I mean, especially our outlook for CV growth, how it gets -- I mean, for you, especially for your CV financing, not so much for the sector, on how it could or if it at all would be impacted in elections. And how do we look at it from like, say, a 1-year perspective? Because the share of CVs has been coming down.
Yes, yes. No, Mahrukh, if we look at the guidance, we gave the guidance of 12% to 15% growth in CV right in the beginning we were doing the merger. And we are maintaining that. If you look at the AUM growth, CV is growing at 13%. So that is something we are maintaining. And we know that in economic ups and down, CV can go up and down.
Therefore, we are very steady in our CV, whereas high-margin, high-yielding businesses, we are increasing, which has shorter tenure and better visibility. Because [indiscernible] visibility will be better, margins are better. So our goal on two-wheelers and passenger vehicles, we are focusing on. And these are the products which can be done from all the branches, across the -- all the 3,000 branches we can do. So that's how we have been able to manage.
And the election will not have a big impact because CV demand mostly depends on the infrastructure activity and overall economic activity. Both are being good. And we expect there is a very steady growth for CV. And plus since the CV cycle has just started 2 years back and the used CV demand will come at a lag. So we expect this CV demand to continue to remain good for the next couple of years. And as I was telling you, we will maintain a 12% to 15% growth in CV, which is really steady.
Even in FY '25, what would be the overall AUM growth you would look at in FY '25?
We will give guidance of 15% only. Because in the beginning, we had given 15% guidance for 3 years. And this year's economic activity being quite good, we grew at 20%. But in the long run or maybe even in the next financial year, we would like to give a guidance of 15%.
The next question is from the line of Vikram Raghavan from Moon Capital.
Congratulations on the results. Sorry, I joined late, so I might have missed it. I just have two questions. One is what is your disbursements for the quarter? And second, the guidance on credit costs?
The disbursement for the quarter was INR 37,787 crores as against INR 34,605 crores in the previous quarter.
The credit cost guidance will be 2% for the full year. For the quarter, it was 2.15%, but the full year will be 2%.
The next question is from the line of Avinash Singh from Emkay Global.
My question is on credit cost. I recall you experienced some changes into the PD and LGD. So I mean, this quarter has seen increase in all your credit cost and you are still maintaining 2% guidance, so with [indiscernible] segment particularly has sort of led to or rather you are seeing your PD, LGD changing more. And despite this increase, you are still guiding for 2%. So I mean, where do you sort of see that, okay, credit cost will moderate?
And the second one again related would be now on your personal loan segment, our overall estimates of PCR is 53%-odd, whereas, I mean, in the personal loan that's largely unsecured and, of course, [indiscernible] book, you are still kind of keeping it down 50-odd percent. So what is sort of leading to that having a personal loan or PCR being lower than your overall PCR?
The quarter-on-quarter PD movement has not been significant. If you see the Stage 1 PD was stable at 7.89%, which was similar to what was there in the previous quarter. And the Stage 2 PD was 18.25%, a marginal increase of 4 basis points compared to the previous quarter. And LGD also, if you see, it is a 6 basis point increase compared to the previous quarter. Again, there are a combination of various factors of the mix and all those things, which drives this number.
And coming to your other question of personal loans, the LGD, the coverage which we maintain is based on the ECL norms, which is based on the historical track record. So as of now, the personal loan has been behaving pretty stable. And as we have also indicated in the previous call that we extend these personal loans to customers who have already demonstrated by paying off the full two-wheeler loans. And hence, the default is comparatively lesser compared to the certain other segments.
Okay. One follow-up, if I may have, on Shriram Housing, your subsidiary. Also the growth is pretty strong and particularly on the co-lending, DA side. So if you can help us understand, I mean, what kind of -- or like who are your kind of key partner in the bank? And also, I mean, there have been sort of a report on your plan to divest this. So I mean, what's going on there?
Yes. This is G.S. Agarwal here. In terms of co-lending, we are basically doing co-lending with one PSU bank and one private bank. And DAs, we are doing mostly with all the private banks and PSU banks. And our total DA and co-lending volume is close to 20%, 21% of our total AUM. In terms of divestment...
See, we are looking at a capital infusion for the Shriram Housing because it is growing. So we are looking at the various options. And any one of the option that suits, we will take the call. Basically, to give growth capital, we are looking at the various options.
The next question is from the line of Shweta Daptardar from Elara Capital.
Congratulations on a good earnings set. Sir, I have two questions. If you could throw light on the write-off trends this quarter vis-a-vis previous quarter. And also, a bit on asset quality, I think you partially answered this in previous questions.
So what is the kinds of asset mix in terms of across products or asset classes where in certain products would have put up benign asset quality trends and others would have been slightly -- some swings there, which is related to such market improvement in GNPAs and credit costs?
The breakup of the rate cost for the current quarter is a write-off of INR 725 crores and provisions are INR 525 crores, totaling to INR 1,250 crores. This compares with the previous quarter, a write-off being INR 839 crores and provisions being INR 289 crores totaling to INR 1,128 crores.
And the other question as regards the asset quality, it has been fairly holding up and then there has been a marginal reduction in the Stage 3 assets. And Stage 2 assets also are more or less holding up compared to the previous quarter.
The economic environment has been quite positive for all the businesses, which we are in, whether it is infrastructure with the logistics, whether it is a demand for a two-wheeler, that is the rural economy or [indiscernible] economy. So we are quite confident that our asset quality will hold good in the coming quarters, even though the elections are likely to be there in the next financial year. Typically, the election, what we call election time, the diversion of mind of the business actually is for 15, 20 days. It will not have a bigger impact for the full year or maybe for a full quarter.
Okay. Sir, I'll squeeze in one more question. Does anything change on the goalpost on growth outlook now that you are 20%-plus?
No. See, we will be looking at this year. We definitely -- we'll be looking at 20% AUM growth. But for the longer period, we have given a 15% guidance in -- around -- during the merger announcement and post that. So that will continue to remain.
The next question is from the line of Piran Engineer from CLSA.
Congrats on the quarter. Just one clarification. Did I hear the incremental borrowing...
No, we do not get you.
Sorry to interrupt. Sir, your line, can you please repeat your question once again?
[Technical Difficulty]
If your question is regarding the cost of borrowing, I mentioned it at 8.95%.
And up 25 bps Q-o-Q, is it?
Correct.
So this is because of the risk-weighted guidelines? Or what has caused this jump?
In fact, there will be factors regarding mix of liabilities, what we have borrowed. We have also increased our retail deposit rates. We have a higher duration of capital market borrowing. With the longer duration, the cost is generally up. And also, the other -- some borrowing for the bank, there has been a slight increase in cost.
Okay. And sir, this ECB we raised, what would be the fully hedged cost?
Okay. So on fully hedged, what we have raised will be around 9.5%. But there is a withholding tax which has to be grossed up, it will be closer to around 10%.
Understood, understood. And sir, secondly, on Shriram Housing Finance, I just wanted to understand our distribution is from all our 1,800-odd branches? Or what is the distribution for the HFC subsidiary?
No. So the HFC is focusing only on 8 states. So it's -- they are not present across the country. Their focus area is 8 states and probably they'll be adding 1 more state this fiscal. But only here and their offices are exclusive, 149 offices and all of them are exclusive to the SFL network.
Okay, okay. Sir, because at this scale, we are at INR 12,000 crores. And when we've looked at other affordable housing financials, we don't see players of this size growing at 60%, 70%. So I just wanted to understand what's giving us this edge on growth versus some of the other players that are actually listed?
I think one is basically, as I said, the strategy of focusing and going deep into territories. So we have identified those 8, 9 states where we felt that -- I mean, about 70% of the business is there, so -- and with a conscious strategy of going deep in those territories. For example, Tamil Nadu, Karnataka, the southern states of Tamil Nadu, Karnataka, Andhra Pradesh, Telangana, Maharashtra, Gujarat. We actually are -- have gone into it very deep. So that actually is one.
The other point is, of course, the team makes a difference. Then third is they're coming off a small base. So 66%, don't read that 66% growth because that's come from a small base. Probably going forward, they may not grow at that 60%, 70% growth, probably they will grow at 20% to 30% growth.
Okay. And how many employees do we have, sir, if you could just help me with that in the HFC subsidiary?
Yes, in Shriram Housing, we have 3,500 employees.
The next question is from the line of Kunal Shah from Citigroup.
Yes. So the question was maybe when you look at all the segments like 2-wheeler, MSME as well as PL, no doubt that there is a substantial increase on a quarter-on-quarter basis in the AUM, which is showing relatively lower Stage 3. But otherwise, there is an absolute increase, which is there in the GNPA and in fact, on the stage 1 provisions out there, they have also increased CapEx, so we have raised across most of these product segments.
So looking at this too, how comfortable we would be in terms of sustaining such a strong growth in these 3 for us?
See, on this 2-wheeler , I think this is like bread and butter product for the team. They've been doing it for the last 23, 24 years. So I don't -- I mean, we don't see any big risk there. And we are pretty confident that we'll be able to hold both GNPAs and the net at what at this rate.
And referring to your other query on the provision, we have taken a hit of INR 525 crores of provision, incremental provision in the current quarter. That has mainly come out of the Stage 1 assets, which has gone up, which has increased by INR 351 crores, which is primarily, again, driven by the growth that is close to INR 11,200 crores of increase in Stage 1 assets. And Stage 2 assets, we had taken a hit of INR 30 crores and the balance INR 143 crores is...
In the stage 1, if I have to look at it in terms of the percentage as well, going up from 3.06 to 3.11. If I broadly look at the split in terms of the segments wherein the Stage 1 provision has gone up, it is largely MSME, 2-wheeler and PL, okay. wherein, again, in each of these segments, the Stage 1 provisions have gone up by almost like 40, 50 odd basis points.
So after [ spanning ] into the previous quarter also that the provision requirement depends on the LGD and the PD rate. And hence, it is difficult to offer any comment on that. So I would request that you contact Mr. Mundra, who will be able to give those finer details.
Yes. And 2-wheeler we have no doubt it's a [ mainstay ], but if you look at the sequential momentum, again, like 16% quarter-on-quarter growth in AUM. So that's, again, quite strong, okay? So obviously, there would have been some intelligently market share and the positioning -- but how was it coming on account of any synergies? So if you look at the growth in some of these segments, if you can highlight what is coming out of really the synergies post the merger?
See, 2-wheeler is largely -- has been masked earlier also by the erstwhile cost. Yes. So as all the dealers were already mapped. So where it is -- but 1 portion of the country where this growth is coming from in 2-wheeler, new growth is, say, Orissa, West Bengal and the Northeast where -- and portions of U.P. and M.P. where SCUF did not have a strong network. The other point is also basically our quarter-on-quarter growth bound to be there because any quarter that has Diwali and Dussehra, Dhanteras coming in, the growth will be strong. The numbers would normally be about 2 -- more than 2x of what we do normally in any given month, particularly in November. So that also is a reason for your quarter-on-quarter growth. But yes, because of the synergy, as I said, these states actually are giving us extra numbers.
And lastly, slightly revised from the guidance earlier on the credit cost, we were at somewhere around 1.52-odd percent. Now maybe this quarter also credit cost continue to be 2.4% not coming off and we are now saying that it will be like around about 2 odd percent So anybody in any of the segment that we are seeing with this kind of a growth?
To be honest with you, no, because in each of these segments, we operate as an individual -- the business teams actually, they are pretty -- each of the business teams have responsibility for the product and they operate within their known environment. So we don't find -- we don't -- there is no worries on any specific segment as of today.
The next question is from the line of Viral Shah from IIFL Securities.
Congrats on a good set of results. So I have 3 or 4 questions. First is on the PL book. So you mentioned that this -- the provisioning on that is based on the historical track record. So is this just SCUF track record that you are referring to? And is the incremental book that is being sourced in this segment, the customer profile of it, is it similar to what the SCUF customers were?
It is exactly the same. It is exactly the same because this is basically 99% of this incremental book is coming from mostly 2-wheeler customers or customers who have finished 1 -- also customers who have finished 1 cycle of 2-wheeler, and the PL and coming back for another PL.
Right. Got it.
2-Wheeler is a short-term tenure, 18 months, 24 months. So it will be very easy to offer to them and keep them in our books.
Okay. Fair enough. And the second is basically, if I look at the slippages trend, so that has been actually inching up. So in last quarter, it increased by 30 basis points. And in this quarter, it has again increased by now 45 basis points. So what is driving this?
Which segment you are saying? .
On an overall basis, the net slippages..
No, you are talking about Stage 3. Stage 3 has actually come down from 6.2% to 5.6%.
Yes. So if you add back the write-off, right, then basically, the slippages number is inching up.
Correct. See, if you see the overall Stage 3 number of absolute amount, even the percentage terms, it is coming down; absolute amount, there is an increase. There is no denying of this fact. And similarly, the Stage 1 and Stage 2 assets also are going up. So the overall book size still is going up.
Okay. Fair enough. And basically, in terms of the growth driver, right? So now primarily we see that the growth for the SCUF segments is coming from the distribution -- expanded distribution that they are now enjoying. So how much more juice is left in terms of being able to, say, scale up these products in the Shriram Transport -- erstwhile Shriram Transport branches and how much should we expect going ahead, because these products are growing at 30%, 35%?
Umesh this side. If you look at the growth -- overall growth of the company itself, where we have guided for about 15% growth at the beginning of the year. I think the growth is also largely a factor in some of these products to the, as you said, expanded network. For example, gold, we have actually introduced in about 600 of the CV branches. There is still work in progress. And these branches have also started producing results, but they have not reached the full potential, number one. Number two, then we also have to introduce gold in -- probably, we'll introduce in another 600 branches going forward in the next year.
So this is a work in progress. We'll have to keep on introducing this. Similarly, the SME loans. The MSME loans, basically, we need people trade. So it's not that I recruit and deploy people at one go. It's a stage-by-stage process that we are doing. So we do feel that Gold and MSME will continue to grow strongly.
The reason again on the personal loan growing so strongly is also a major factor is the distribution. Because earlier, we were -- in SCUF, we were struggling to reach these customers because we had about close to 3 million eligible customers, and we were struggling to reach them. Now with that expanded network, we were able to reach them and service them. So that's the growth -- that's why you see that 60%, 65% growth in personal loans that you see.
Okay. And if I have to say -- ask you to ascribe a number in terms of at what potential has this product reached from these new branches so as to just get a sense?
Sorry, I didn't get your question properly. Can you...
Yes, basically, like, for example, the gold branching -- gold loans from the branches, the 600 branches where you have already rolled it out. So in those 600 branches, what's the AUM, the gold loan AUM and how do I, like how is it compared to your erstwhile SCUF gold loan AUM in the branches?
So I don't have the numbers offhand, but I think if you can reach out to Sanjay, he can give you those numbers.
Fair enough. And lastly, on the status of the fintech partnerships on the PL and the MSME piece, if you can talk on that? What's the status, the progress?
No, PL fintech is -- we are only working with 1 partner that is only for a sourcing partner. That is been working -- we've been working with them for the last 6, 7 years. So we are not pushing that. Basically, it's happening about INR 4 crores, INR 5 crores per month is what we are doing with them.
Now on the -- so on MSME side, we have only tied up with Pay TM to do only merchant loans. But that is -- we are still finding our way around. So it's not a full selected operation asset. We are actually exploring the area. So probably we will only see how -- we'll be able to guide you how much we will do probably down a quarter.
Right. And sir, lastly, basically, in terms of the share of the personal loans, last quarter, you had said that we'll probably be capping it at around 4.5%, 5%. So we have now reached 4.5% -- so should we now expect that the growth going ahead will be in line with the overall loan book growth?
Yes. Though we have a 8% cap authorized by the Board, we would like to keep it below 6%.
Below 6%?
Yes.
So you'll probably take this up to 6%?
See , we are not taking it up to 6%. As I told you, we have a 3 million eligible customer database. Eligible customers in a sense through an algo, I mean, basically depending -- basing on their payment pattern, basing on their income sources, we have a 3 million database.
So it is available there in the market. It is available there and those customers are our existing customers, they are not market customers. So whether -- to grow it's not that I'm consciously pushing it. Since we have the data, we were -- some of these branches where CV branches are also involved, it has grown. But going forward, it should grow at about 20%, 25%.
Okay. Fair enough. And lastly, I would say, a bit of a data keeping question. So the cost of funds, you mentioned that it has sequentially gone up, but when I look at the reported or rather sorry the calculated funding cost, that is actually showing a 20 bps decline quarter-on-quarter. Is that the intra-quarter adjustment, the averaging effect?
That has been mainly driven by the liquidity. So okay, that [indiscernible] anyway, Sanjay can help you out offline.
The next question is from the line of Nilesh Jethani from Bank of India Mutual Funds.
Okay. Am I audible?
Yes.
Yes.
My first question was in line with the previous participant only. So this 20% odd AUM growth. So I wanted to understand what you would attribute to branch expansion, cross-selling, et cetera, via the Shriram Transport branches? And what would be the actual growth, which you ascribe to this 20%?
Second question is on the passenger vehicle growth. So growth seems to be higher for us. So what you would ascribe to pricing and volume? And how do you see this investor see this stage of high growth to continue over the next 2 to 3 year period? What is your sense on that? And third is on the credit cost. So directionally, as the share of SCUF product increases, do we attribute from a 2- to 3-year perspective, the credit cost can actually go up to 2.5% to 3%, which is normal for a 2-wheeler and a personal loan business?
So answer to your last question is no, we don't anticipate the credit cost to grow beyond 2%. Basically, they're holding pretty steady there. And in fact, if you look at the 2-wheeler credit cost, it's slightly lower than the personal loan, which is expected. The other question on the growth ascribed to the expansion or product expansion to branches. As I said, as we said in the beginning of the merger time, we have guided for a 15%. And today, we are at 20%. I think you can expect the growth in gold loan, personal loan and to some extent, MSME and passenger vehicles to the merger effect also, expanded network effect also.
Commercial vehicles, not so much from the erstwhile Shriram City branches, but mostly the existing City branches because it's difficult to actually evaluate those vehicles, source customers for -- from these branches. Because again, mostly most of City run branches are situated in urban cities, I mean in the center of the city or a town, whereas this business, you need branches in peripheries.
Got it. And the passenger vehicle piece, volume versus price growth we are seeing, if any you can attribute, and how to look at this growth from 2- to 3-year perspective for us?
We hope that demand will continue to be there. See there are 2 things. One is the personal mobility vehicles and the other one is your commercial passenger vehicles. Both are growing. And with the improved infrastructure, I think that will keep growing.
There's a lot of upgradation from a 2-wheeler customer to used car. Aspirational demand is coming to passenger vehicles. That is really helping us. And the previous track record of 2-wheeler customer who wants to upgrade that helps us to grow faster than passenger vehicle. So that is really helping us to grow faster in passenger vehicle where we are growing around 30% year-on-year.
Got it. And then 1 last question, if I can squeeze in. Our branch count from 2,900 has only increased to 3,137. So wanted to understand what is our strategy? So maybe this year or next year, are we focusing on cross-selling and probably start on the branch expansion from a year or 2 later. So what's the thought process of the branch expansion?
Most of branch expansions are happening where we are having a rural center. We are converting that into branch after reaching a certain growth. So that is the main addition into the branches. And also, there are some locations where we feel the gold loan -- the customer can get -- we can offer gold loan in the residential area. There, we are putting the branches.
So totally, we have added 136 branches in the last 1 year if you look at last year same period to now. So our commentary also was -- guidance was that we will be opening around 100 to 150 branches, which is a combination of the conversion of rural center and the new branches.
The next question is from the line of Chandrasekhar from Fidelity.
I had a few questions. One, could you just remind us maybe how large is the used bus segment? That's one. Then maybe how large are fleet operators within this segment? And what is the average ticket size right now on the passenger vehicle?
We don't have a large bus segment which is financed because most of these bus operators, tourist buses, we don't lend much. And the normal transportation buses, where the government has a monopoly, we don't lend. So most of our lending will be 4-wheelers and the local transportation.
Umesh, sorry, I meant school buses?
School business, we have a reasonably large portfolio. But see, post COVID, it has not really grown big. During the COVID, it came to a standstill. And after that, it has not really grown big. But that's a very, what you call highly, what you call least credit cost of portfolio, of a good portfolio, which we may continue growing as the business picks up.
So is the delta coming in from people upgrading their fleets or like the fleet operators, Ubers and Olas upgrading their fleets because, I mean, my understanding is that the entire used PV segment is like a INR 100,000 crore market size and our book is already INR 35,000 crores over here. So I was just trying to get some sense around the market sizes and then just how large we are related to that?
See normally what happens is you can't have a strict monitoring of the passenger vehicle. It is -- thumb rule is 1/3, 2/3. 1/3 is used for what we call commercial use, 2/3 is for personal use. Even the vehicle registered in a personal use gets used for commercial vehicle in the commercial activity in the semiurban and rural area, not in the urban area. Urban area is strictly monitored.
So many of the customers would be having a vehicle which is registered as a personal vehicle but using for commercial purpose in the smaller towns. So the business in the semi-urban and rural area, that is where we are very active. And many of them are SUVs or MUVs or a car and not much in buses. They don't have large bus portfolio.
Is it safe to say that the average ticket size here will be about INR 150,000 approximately?
No, no, it's higher. It is around INR 300,000. Generally, it's about INR 2.5 lakhs to INR 3 lakhs. The used car prices also have gone up substantially, yes.
Got it. Got it. On the MSME segment, are there any changes in the ticket sizes or tenures, which we have done? I mean we used to have INR 8 lakhs to INR 10 lakhs it came down to INR 6 lakhs to INR 8 lakhs, is it going up towards INR 8 lakhs to INR 10 lakhs again?
No, it's still the INR 10 lakhs. It's still about INR 8 lakhs to INR 10 lakhs only. And there are no change in tenures.
Right. Right. And sorry, the last question, maybe if you could just help us. There was 100 bps of capital consumption in the quarter, the Tier 1 down to 20. So maybe just help me understand where did 100 bps get consumed within 1 quarter itself?
It is mainly with all the growth assets. And some 20 basis points increased due to the risk weight attributed to the personal loans.
The next question is from the line of Abhijit Tibrewal from Motilal Oswal.
Congratulations on a good quarter. First thing first, I mean, more of a data keeping question, if we can provide the product-wise split of our disbursements.
Or upgrades? One second.
The CV was INR 14,449 crores, passenger vehicle INR 6,092 crores, construction equipment INR 2,780 crores, farm equipment INR 464 crores, MSME INR 4,328 crores, 2-wheelers INR 3,699 crores, gold INR 3,120 crores, personal loans INR 2,853 crore; totaling INR 37,787 crores.
This is useful. Sir, the second question I had was on the liabilities. Obviously, I mean, there were multiple questions on where the cost of borrowings have moved up, the incremental cost of borrowings. Sir I wanted to understand, I mean, the impacts from this RBI risk weight circular where it has increased risk weight on bank loans to NBFCs.
Is that impact already there in our cost of borrowings? Or do you think that large part of our borrowings are our PSL and they will not be impacted by the increase in this circular. Probably what I'm trying to understand is, I mean, how are the banks posturing on the liability side?
And the other thing is from what I understand, given the deficit liquidity in the system, short-term rates have actually spiked up. So I mean, is it not really having any impact on the cost of borrowings or will it not have any impact on your cost of borrowing because somewhere I remember hearing that we are saying that we don't expect cost of borrowings to go up further?
Yes. I think 2, 3 things. One, what we said rate was immediately after RBI notification on the higher risk weight for the lending to NBFCs. Some of the banks, 2, 3 banks have actually increased the overall rate for us. Most of the other banks have only said that on incremental lending they will increase the rates. So as I mentioned, the incremental cost of funds for us for the quarter was 8.95, which was -- previously the banks were lending at around 8.60% to 8.75%. That is why we don't expect even at higher lending rates, this to breach at beyond 8.95%, it is something which is not foreseen. So that we don't look at any substantial increase because of the incremental borrowing from the banks be at a higher cost. That is not foresee.
Any other liquidity-related concerns, whether there will be a further spike that -- I mean, I think that liquidity tightness is there for some time. The capital market rates had gone up, and that is all factored in. We are not seeing any further increase in the capital market rates. So Beyond this, we don't -- as of now, we don't foresee any substantial increase in the liability cost.
Okay, sir. This is I think very useful. And my last question was, again, kind of circling back to Shriram Housing, while I understand you have already partly answered that we'll be looking for capital infusion in your housing subsidiary. Sir, from what I recall earlier, the discourse used to be that we will maybe look to get an external investor in the housing subsidiary for maybe a primary equity infusion.
I mean, what recent media articles are suggesting that and you yourself acknowledged that you are looking at various options. Some media articles have even gone to the extent of stating that you are even looking at completely selling down the HFC subsidiary rather than, I mean, bring an IPO of the subsidiary at some point in time? So if you could just briefly elaborate on that.
At the time being, we're looking at all the options with open mind. We're not either choosing anything right now. So I will not give you -- we'll not be able to give you a very specific answer because we are still looking at all the options or various options.
We will take that as a last question for today. I would now like to hand the conference over to Mr. Umesh Revankar for closing comments.
Thank you very much for joining this call. As you are aware, the last quarter will be always the biggest quarter. And we all are looking at the final quarter for this financial year as going to be a very large quarter and also busy quarter. And we also have a budget which gives, even though it's interim budget, which gives some indication on government's plan on the infra spend which is actually giving in the last couple of years, a big boost for the -- most of the demand for commercial vehicle and the construction equipment. We all hope that it will continue to remain as a primary objective of the government of building infrastructure for Make In India. And therefore, we expect a busy quarter and also a good set of numbers. Thank you very much for calling. We'll meet you again on our next call. Thank you.
Thank you. On behalf of Shriram Finance Limited, that concludes the conference call. Thank you for joining us. You may now disconnect your lines.