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Ladies and gentlemen, good day, and welcome to the Shriram Transport Finance Q1 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Umesh Revankar, Vice Chairman and Managing Director. Thank you, and over to you, sir.
Thank you. Good evening friends, and a warm welcome to all of you for joining this call. Good morning to those who joined from here. Today, we have our Brand Managing Directors, Mr. Sudarshan, Sridharan, Nilesh, Sunder and Parag, along with me, and Mr. Sanjay, who is our IR head. Firstly, on behalf of company and Shriram Group, I'd like to thank all the shareholders, investors in approving the arrangement embodied in the proposed composite scheme of arrangement and amalgamation between various Shriram Group companies at the holding company level and the merger of 2 operating companies, that is Shriram Transport Finance and Shriram City Union Finance Limited. The scheme was approved by 97.13 votes by Shriram Transport shareholders and 99.56 by Shriram City Union Finance shareholders. Coming to the economy, India's gross domestic product growth slowed to a 4 quarter low of 4.1% during the [indiscernible] period from 5.4 in the preceding quarter.
As a result, full year growth came in at 8.7%, it's at lower than 8.9 projected earlier in the February. Coming to the inflation, India's headline retail inflation rates as measured by CPI stood at 7.01% in June '22 from 7.04 in May '22 and [indiscernible] showing slight decline. This is sixth consecutive month that retail data has reached RBIs upper margin of 6%. This upper inflation is definitely having some adverse effect on consumption and there are some indications on economy slowing down. The annual wholesale price index inflation rate in India fell to 15.18% in June from 15.88% in the early prior month, less than the market estimates of 15.5%. Coming to the RBI monetary policy, RBI in its monitory policy on June 8, '22 has increased the policy repo rate under liquidity adjustment stability by 50 basis points to 4.9% with immediate effect. Prior to this, RBI increased the repo rate to 4.4% in May, '22.
The inflation is projected at 6.7% for our financial year '22, '23 and MPC has retained GDP growth forecast of India at 7.2. The GST depositors ID with GST revenue collection in the month of June is INR 1,44,616 crores and is second highest collection after April, which was INR 1,67,540 crores. The GST collection crossed 1,40,000 crore mark for fifth time since inception of GST and 4 months at a spread since March '22. The monsoon trend seems to be positive and good. The latest data tells that farmers have planted a total area of 592.11 lakh hectare so far in this kharif season. This is more than 591.30 covered during the corresponding period last year. Now, coming to the commercial vehicle sales, in spite of a ship shortage challenges, the commercial vehicle sales increased by 112% to 2,24,512 units in Q1 FY '23 as against 1,05,800 units in the Q1 FY '22. It has decreased marginally from the Q4, which was at [indiscernible] units.
The heavy and medium commission vehicles showed positive growth of 160% with 85,685 against 29,158 units during the corresponding period previous year. The LTV numbers also showed growth of 94% to 1,48,827 units as compared to 78,642 units sold in the corresponding previous year. The tractor sales has improved by 47.5% to 158,169 units in the Q1 compared to 1,07,257 units in the previous year. The earthmoving and construction equipment showed 59% improvement in sales [indiscernible] 21,299 unit sales compared to 15,153 in the same quarter previous year, so all the indications being very positive and good. Coming to the first quarter performance, the collections were consistently good. Average collection of June quarter was 101.45 of the demand against 91.04% of the corresponding quarter in the previous year and against 104.28% in Q4 FY '22.
We dropped the disbursement growth of 30.92% to INR 16,670 crores against INR 12,733 crores in the same period of previous year. The used vehicle disbursement increased by 26.42 to INR 15,754.52 crores against INR 12,462 in the same period previous year. The new vehicle disbursement outsourced showed improvement by 256.7% to INR 784.96 crores against INR 220 crores in the same period previous year. Overall, the AUM grew by 9.55% to INR 130,688 crores as compared to INR 1,19,301 crores in the previous year. The net interest income increased by 25.35% to INR 2,641.77 crores against INR 2107.45 crores in the same period previous year. The net interest margin was 6.91% against 6.38% in the same period previous year and 6.96% in the Q4 FY '22. The profit after tax increased to INR 965.27 crores in Q1 FY '23 compared to INR 169.94 crores in the previous year, which is 468% increase.
The EPS stood at 35.68% compared to 6.64% in the previous year. Gross stage-3 declined by 7 basis points and net stage-3 declined by 15 basis points over Q4 '22 and hence, the gross satge-3 stood at 7% compared to 8.18% and 7.07% in the previous quarter. The net stage-3 stood at 73.52% compared to 4.74% in the previous year quarter and 3.67% against the previous quarter. The credit cost for the current quarter stood at 2.09% against 2.68% for the full year ended '21/'22. The liquidity position now stands at INR 18,020 crores against INR 17,709 crores in the previous quarter. And during this quarter, company raised USD 250 million from U.S. Development Finance Corporation. The cost-to-income ratio was 19.46% in this quarter against 19.11 recorded in same period previous year.
On the update of the merger, we have received approval from both the stock exchanges, NSE and BSE, RBI and NSE is a convenient shareholder and a shareholder has approved and also from IRB. The only pending approval is now with DCI which is expected any time. We expect the merger process to be completed in the month of October. During June quarter, Promoter Group Shriram Value Service Limited has acquired 77.10 lakh equity shares representing 2.85% of the share capital from open market, and increase to its stake 23.24% from 1.39%, hence, the total promoter shareholding has increased to 29.30% from 26.45%. On the growth outlook, we maintain the earlier indicated growth of 15% for the combined entity for the financial year. On the pilot project, we had a pilot run for 52 branches, 27 of STFC and 27 of SCUF and around INR 30 crores lead was generated.
And as further plans, pilot 2 will be starting from 1st of August in level 83 branches, which is 62 branches from STFC and 31 branches of SCUF. So that is the plan.
Now I will hand over to Mr. Parag Sharma to give you update on the liability side, and Sunder also will join the call on asserting numbers.
Hello, everyone. I'm Parag. On the liabilities, total liabilities stand at around INR 1,19,000 crores compared to March of INR 1,14,000 crores. The cost of liabilities have not changed much between March and June. The cost of liabilities is around 8.6% on the balance sheet. When it comes to the quarter, we have mobilized more than INR 4,000 crores through securitization and a segment transaction, which was higher than what [indiscernible] did in March quarter. Total borrowing was INR 12,600 crores for the June quarter. We are carrying excess liquidity of 18,000 and the maturities for the next 3 months is around INR 8,000 crores. This liquidity will be good enough to meet the maturities for next 6 months. There is a lumpy foreign currency liability of dollar bonds, which is in October, and that is the prime reason of carrying excess liquidity as of now.
On the ALM front, all the buckets are positive and up to 1 year, the cumulative surplus will be more than INR 21,000 crores with up to 3 years being around INR 29,000 crores. Our leverage ratio is maintained. It has around 4.45x compared to March, which was 4.42%. Incremental cost of borrowing has gone up for the bonds, what we have raised, by around 50 basis points. The bank borrowing rates have not gone up significantly, it is more or less same in this quarter compared to March quarter. And securitization, what we have done by the [indiscernible], there has been a marginal increase in costs. So overall, incremental cost of borrowing has I think gone up by around 15 basis points, not very significant. With this, I'll hand it over to Sunder for his comments.
Thank you, Parag. Hi, everyone. The employee count as on 30th June was 24,720 as against March number of 24,456, marginal increase of 264 employees. The cost to income has been stable at 19.46% as against the March number of more or less up around 20%. And as far as the onetime restructuring that we had done in the previous year because of COVID, which was submitted by the [indiscernible] to 39,410 borrowers amounting to INR 1,152 crores, out of which outstanding is [indiscernible] INR 73 crores and the [indiscernible] is 1.5%. And coming to the ECL, the PD for stage-1 was 7.34%, up against the previous quarter number of 7.34%. Stage-2 was 21.75% as against March number of 21.72%. The LTD was 43.76% as against 44.65% in March quarter. The company is carrying an external provision compared to the RBI requirements by around INR 6,730 crores. The capital [indiscernible] is strong at 22.54%, tier-1 being 20.62% and the tier-2 being 1.92%. That's it from me now. Thank you, and we'll now take the questions.
[Operator Instructions] The first question is from the line of Abhiram Iyer from Deutsche Bank.
First, congrats on a good set of numbers. I have 2 questions. One was, could the company give a sort of general guidance over the upcoming quarters in terms of repayments and what they're expecting, considering that inflation is still high and fuel cost is still high? So are they expecting, say, more defaults upcoming or is the company sort of actively managing that? And the second question is a bit more pertinent to proposal that was placed in front of the board for buyback of its debt securities. Could you get a bit more color on this, whether this is going to be from the INR market or the USC market and what kind of quantum or timing that would be?
Yes. See, as far as the inflation concern on the collections are concerned or the difficulties in collection, we don't really see that challenge because what happens, when a person contracts the loan, he knows what the EMI he is paying. So if it's now a new customer coming this month and buying a vehicle, which is at a higher cost because the inflation price goes up, he exactly knows what EMI he is going to take, so depending upon the current situation, the EMI gets fixed, so you may take a longer duration to reduce this EMI. So it doesn't get impacted because ours is all contract rate and also fixed EMI, so it doesn't fluctuate, it doesn't go up in between, not like your housing loan, it doesn't go up, the EMI doesn't go up. So therefore, there's a predictability is clear. So the chances of the person having a challenge in repaying doesn't occur.
Then, however, the increase in fuel price, it normally gets passed on to the end consumer. So imagine, if the fuel price goes up, to the extent the freight rate goes up and since freight rate goes up, the inflation goes up, so end consumer will end up paying. So truck operators arguably don't bear the cost of increased fuel price. So we don't expect any challenges due to increase in fuel price or inflation challenges on collection because everything is depending upon the business. As far as the buyback...
Buyback, we are already taking an enabling resolution that is keeping excess liquidity, as of now, we have excess liquidity. We'll look at opportunities of closing any of the high-cost debt that we have, so nothing has been firmed up. Things are being evaluated. As I mentioned, we do have a huge dollar bond liability and one of the reasons for higher liquidity is to meet that particular liability but we will look at opportunities and then we'll communicate accordingly.
Got it, sir. And could you also just explain a bit on your debt raising plans for the rest of the year? With the rising interest rates, are you finding conditions a bit difficult or is it still a normalized pipeline for you?
So I don't think there are any concerns when it comes to raising debt. And that is the reason why we are looking at even buying back some of the high cost debt. So opportunities are ample. And one of the large sources securitization, which is for priority sector assets, demand is good. The retail deposit mobilization program is also doing well, so no challenges there. Increased cost of funds, I think we will have the wherewithal to pass on to the end consumer.
[indiscernible] the pricing power, since we are in the niche segment of lending to used vehicle and in the rural market, we have that pricing power to pass on any increase in borrowing costs. Since it is, as I was telling you, it's a contracted rate, whatever increase, the rate will remain throughout the period.
The next question is from the line of Shubhranshu Mishra from UBS.
A couple of questions. The first one is, I don't think in the initial comments, we spoke about the disbursements if we can have just that far on the question, sir? The second part is, if we can also speak about the number of vehicles that you finance in these category, new and used, both? The third is what proportion of our bank borrowings are on EBLR, external benchmark, and what portion would be on MCLR? And I see a sharp decline in the proportion of securitization, is that because the cash flow cash [indiscernible] has increased the interest rate happening or any other specific reason because of that? If we can speak on these few questions, that would be thankful.
The disbursement number, I did mention but I'd like to repeat it, INR 16,670 crores was the disbursement for the quarter. And out of that, INR 15,754 towards used vehicle and 784 goes against new vehicles.
Coming to your other question regarding the bank loans, most of it will be MCLR linked, around 75% will be MCLR linked, 25% will be external benchmark, that is on the bank side. When it comes to securitization, the quantum of securitization for this quarter has gone up. Your other question was, whether the collateral requirement from the regulatory agencies, whether that is up? That is not the case. We are not seeing any increase there. So, though, as a percentage of the debt outstanding, securitization has come down from 17% to 16% but the overall quantum of securitization for the quarter has gone up and we do see that trend to continue, higher securitization to continue, and we should go back to around 18% to 19% in coming quarters.
Sir, one question remained unanswered, sir, the number of vehicles...
Number of vehicles, [indiscernible] number, Sanjay will revert back to you.
The next question is from the line of Varun from Nippon Mutual Fund.
I just wanted to understand a little bit more on the maturing liability of the U.S. dollar bonds. So if I recollect correctly, that was about INR 750 million, so are you guys looking to refinance it? And in which case, how are your rates looking like now because it'd be increasing your rate generally?
Yes. The $750 million is maturing what you are saying is right in October. And of course, one of the earlier bonds that was there, it was slightly higher cost. Even we, as of now, have no plans. We have no plans to get any refinancability for this. It's a very short maturity now, so we will repay out of our current excess liquidity only. And onshore, what we are borrowing right now is much, much cheaper than compared to what we borrowed 3 years back for this dollar bond. So no refinance option, we're not evaluating anything.
Sir, what is the total landed cost for that?
Yes, at that point of time, it was close to around 10%.
And the INR 250 million that you have just raised, what is the total hedge complete landed cost for that?
So the coupon is 4%. The overall fully hedge cost will be around EUR 8.8 million.
And just one point I wanted to understand in terms of the fixed versus floating nature on an overall basis for your liability side and also how you are able to translate this on the asset side? Is it only on new disbursements? I'd imagine that most of the asset side would be on a fixed basis, right?
Yes, liability side, other than the bank loans, everything is fixed. And bank loans also, which is linked to MCLR or external benchmarks, the increase doesn't happen significantly. So as I said, [indiscernible] what you are saying is right but any liability-based securitization, be it deposit, be it the external commercial borrowing, all are fixed rate growth.
The next question is from the line of [indiscernible] Ketan Shah from Credit Suisse.
So this question is pertaining to the funding cost and the NIM outlook. So given that we'll be using our existing funds to repay the dollar liability maturing, that would have a positive read through on margins as you bring down the liquidity instead of refinancing it. The second benefit is also from repricing of existing domestic bonds that will be maturing this calendar year but on the offset, the incremental costs have started to go up. So if one were to think about the funding cost trajectory on the next 12-month view, what kind of increase one should kind of expect and also the same for margins?
Funding costs, because of excess liquidity, we are carrying a huge negative, [indiscernible] negative carry on the liquidity, so with liquidity coming down, there will definitely be a benefit, what you are saying is right. Incremental cost is up on the bonds what we raise. When it comes to other borrowings based securitization, bank borrowings, the rates have not gone up significantly. Overall, blended, if you look at, I think the rates further not going up and the overall cost to us will go up around 20 basis points, 30 basis points.
And could you clarify versus current liquidity buffer of INR 188 billion, what number would be a normalized level that you would be comfortable operating it?
Yes. So we used to have a policy of maintaining 3 months of liability as liquidity buffer and 3 months of liability is close to around INR 8,000 crores. So that is what we will continue to have liquidity. We are currently, I think, 10,000 excess.
Next question is from the line of Abhijit Tibrewal from Motilal Oswal.
Sir, I just wanted to understand what's the demand environment looking like now. I think somewhere during the last month, we were kind of beginning to hear that there is some perceptible slowdown in the SCV segment that is kind of being witnessed by the vehicle financials. Now, had that not been the case, I mean ventures would have done even higher disbursements. So I just wanted to understand, I mean, what's the demand outlook looking like? If at all, I mean, whatever macro outlook or whatever macro uncertainties that you are in, I mean can you have any bearing on the demand in the coming quarters? That's my first question, sir.
Basically, there are multiple factors that is impacting the demand. If you go back to the 2018, '19, the peak sales on commercial vehicle was 1 million units being sold. And from 1 million, it came down to 550,000 during the 2021 and last year, it went up to 720,000. And normally, whenever there is a downtrend and the next peak season, it normally crosses the previous highs. So I still see, we believe there is a huge opportunity and scope for the number of units to go up. It may take another couple of years to increase, to go after the set but there are several challenges faced by the commercial vehicle in between. One is the vehicle price going up because of the BS-VI. And second is because of the steel price going up, the vehicle price going up. So vehicle prices have gone up by 30%, 35% over the last 3 years. For acquiring a new vehicle, it becomes a little bit challenge, so it is getting a little postponed. But the Indian economy looks very robust currently.
If you look at the fuel price increase or inflation has not better or not really brought down the growth, everywhere I see growth being reasonably good, even though the stubborn inflation has some negative impact in the urban market. In the rural market, I don't see the same because of the good monsoon and consistent good edible output and better price realization in the last 3, 4 months. Because of geopolitical tension, the wheat prices went up, edible oil prices went up, so the rural economy did not have a negative impact, in fact, they had a positive impact because they had a better realization. So the rural consumption seems to be quite good. And till now, the real estate also is holding reasonably good in the urban market. So all the indication is that the momentum is likely to sustain.
Maybe the rate of growth can come down a little down from 8.7% GDP growth last year, it may come down to around 7.2% but still, India is the fastest-growing economy in the world and probably it may improve in the next financial year is what I believe. We still believe the demand is quite decent and reasonable. And as far as our customers are concerned, if the new vehicle prices go up, they normally prefer to buy used vehicles and remain at that level, so that, depending upon the application for which they are moving the vehicle, they remain at that level. But one trend which is very positive is in the construction equipment and the construction-related vehicle. The demand for dumpers are very high. There is a waiting period. The demand for construction equipment is quite high and there is a waiting period.
So since there is a waiting period and demand still continues to be good, in the heavy vehicle sales, normally, this number gets included in the commercial vehicle, it doesn't get included in the construction equipment. So whatever the new vehicles are selling in heavy, it's mostly [indiscernible]. So we feel that the government spend is reasonably good and it is continuing. And if that is continuing, I see the commercial vehicle demand will continue to remain well. And e-commerce demand is quite good, and therefore, there is a large demand for last mile connectivity or last mile distribution. So I believe that the commercial vehicle sales or demand and even the retail values will remain good for at least another couple of years or more.
Sir, if I were to kind of extrapolate it, I mean, based on your commentary, I mean, you are fairly confident that given all these tailwinds, I mean, the kind of sequential improvement that we've been kind of demonstrating or that we are typically used to see first quarter to the fourth quarter in fiscal year should sustain this year as well?
Yes. Correct.
Sir, and lastly, on the credit costs, given that things are now, I mean absolutely normal and obviously, I mean none of us are really kind of talking about the pandemic and COVID anymore, I mean, very fair that we have started utilizing our forward provisions over the last, so 2 sub-questions here. A, I mean what is our thought process? Will we kind of keep utilizing these COVID provisions gradually in the subsequent quarters and if we do that, then is there a case for credit costs for the full year to come below that 2% to 2.3% that you kind of keep guiding for in a good year?
Yes. See, we are still carrying around INR 1,800 crores of COVID provisioning. We have used this quarter around INR 216 crores being utilized. Over the next 3 to fourth quarter, the rest of it may be utilized depending upon how each of this portfolio which we disbursed during the COVID or maybe prior to that is behaving. So we are adequately provided. And sales cost should remain around 2%, last quarter, it was around 2.09 and we expect it to remain at that level throughout this financial year. And probably next year, it may come down further.
The next question is from the line of Chandra Sridhar from Fidelity.
One is just, have we just stopped this working capital loans, etc. completely because I couldn't share of any disbursement number there and also, obviously, on the EU, it's been just coming off pretty substantially, it is 2% in the level? So maybe that's the first question. Second is, the whole NIM expansion, so earlier, we constantly secured that the board used to say that we're going to keep excess liquidity, the board has asked to keep excess liquidity for a slightly longer period, that period has passed, now we have a bond maturity coming. I mean, these things will keep coming. We are past that point where I think funding was a major issue. So are we fairly certain, at least because we've been hearing this on about 2 years now that the board has recommended that we keep running excess liquidity, at what point in time do we have been very confident that we can come back to 3, 4 months of liquidity?
Second and third is just what are the incremental yields on loans? Have we started taking pricing action at this point in the market, just the incremental yields on the loans this quarter versus the book?
Yes. To answer your liquidity questions, see, the board has been telling us to keep excess liquidity but this time around, we've had a discussion at the board on the liquidity and the board has suggested us that we can look at some buyback arrangement so that liquidity slowly gets phased out or gets reduced from 6 months to 3 months level.
So we'll be still looking at the environment and depending upon that, we'll be working on that. But from this quarter onwards, every quarter, we'll be looking at reducing the excess liquidity in the system. On the working capital loan, it is not that we have totally stopped lending. There are 2 factor in that. One is the business loan and other one is the working capital loan. Bunched together, it was around 4% of the portfolio.
On the business growth, we have reduced the ticket size and we have made it smaller ticket, therefore, the number of disbursements have gone up but not the volume. On the other working capital loan, we had slowed it down during the COVID because we wanted to restrict the working capital loan but now, since everything is behind us, we have started increasing the working capital loans.
So we believe next year, probably, we'll go back to that 3.5% to 4% level. And ultimately, we wanted to keep not more than 5% at any point of time. So temporarily, it has come down because of the environment, that will now improve over the next couple of years.
What were the incremental yields during the quarter?
Yield, we had increased the lending rate by 25 basis points in the month of June. For the quarter, it has not changed much, it has remained almost the same as previous quarter.
And should we assume that there will be more pricing action over there?
Yes. The lending rate will further go up but net interest margin will remain almost same.
So ideally, it should improve, right, as you start reducing some of this liquidity, I presume that will.
The cost of borrowing is going up, so it may not significantly improve, there could be some 3, 4 basis points, plus or minus so we do not know what is the actual [indiscernible] that is still going to go up. And also, as I was telling you, it may take another 2 to 3 quarters for us to reduce the excess liquidity.
Thank you. As there are no further questions, I now hand over the conference to Mr. Umesh Revankar, Vice Chairman and Managing Director for closing comments.
Thank you. Thank you for joining this call. Maybe this was one of the good quarter for us because normally, first quarter is slow and this time, we got started quite well off because this quarter results have been quite decent and good. And we believe going forward, it will become better in this financial year and [indiscernible] in the next quarter. Thank you very much.
Thank you. On behalf of Shriram Transport Finance, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines.