Shriram Finance Limited (NSE: SHRIRAMFIN) Q2 2025 Earnings Call dated Oct. 25, 2024
Corporate Participants:
Umesh Revankar — Executive Vice Chairman
Y.S. Chakravarti — Managing Director
Parag Sharma — Chief Financial Officer
S. Sunder — Joint Managing Director
Analysts:
Chintan Joshi — Analyst
Avinash Singh — Analyst
Gopinandan Reddy — Analyst
Shubhranshu Mishra — Analyst
Unidentified Participant
Kunal Shah — Analyst
Raghav Garg — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the Shriram Transport Finance Q2 FY ’25 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.
Umesh Revankar — Executive Vice Chairman
Good evening friends from India and Asia. A warm welcome to all of you. Greetings also to those who have joined the call from Western part of the world. To present our Q2 FY ’25 earnings call today, I have with me our Managing Director and CEO; Mr. Y.S. Chakravarti; Managing Director and CFO, Mr. Parag Sharma; S. Sunder, Joint Managing Director; and Sanjay Kumar Mundra, our Investor Relationship Head. It has been a good second-quarter of the year for Shriram Finance.
Let me first look at how Indian economy has performed. India’s economy grew at 6.7% in the April-June quarter FY ’25 over the growth rate of 8.2% in Q1 of FY ’23-’24. This figure reflects a deceleration from 7.8% growth seen in the previous quarter of FY ’24 and 8.2% in the corresponding period last year. It was the slowest expansion in the last five quarters to a sharp slowdown in government spending as the long-awaited general election drove several usual government activities to some halt. On the retail, on inflation, India’s retail inflation CPI rose to 5.49% to nine-month high in September, higher than 3.65% in August. This is highest retail inflation rate since 2023, December 2023, when it was 5.69%.
Food inflation, a persistent challenge rose 9.24% annually compared to a 5.66% rise in August. The wholesale price — price index, inflation for June 2024 touched 16-month high of 3.36% after scaling 2.61% in the previous month of May ’24. In fact, since February ’24, the WPI inflation has surged from 0.2% to 3.36%, largely on the back of spike in wholesale food inflation and manufacturing inflation turning around from negative to positive. On RBI policy, RBI in its MPC meeting held on October 9, ’24 decided to keep policy repo rate unchanged at 6.5% for the 10th consecutive time. However, RBI changes stance of monetary policy to neutral from withdrawal of accommodation.
The MPC has projected real GDP growth for 2024-25 to 7.2%. This number remains unchanged from last projection. Also taking various factors into consideration, the CPI inflation for ’24-’25 has been projected at 4.5%, the same as projected in the previous policy. On the rural economy and monsoon, as per IMD, the Southwest monsoon this year was 8% over its long-term average. However, the rainfall is likely to continue in October and November with above-normal monsoon rainfall expected. About 35% of the country received excess rainfall and slightly over the half, that is around 54% receiving normal rainfall.
Despite a slow start, rainfall picked-up in space helping the farmers with sowing. Overall, farm productivity is expected to be higher, which should help same year-long rising trend in food inflation. The good rain in June to September has pushed up Kharif sowing to almost 111 million hectares against normal acreage of 109.6 million hectares, according to the latest data released on September 27. On GST collection, the GST collection for the month of September grew 6.5% year-on-year at INR1.73 lakh crore, while it witnessed a dip compared to INR1.74 lakhs crore in August ’24. On the OEM sales side, this quarter has been soft for automobile industry.
Commercial vehicle, total CV sales in Q2 FY ’25 declined by 11% to 2.21 lakhs unit against INR2.48 lakh unit in Q2 FY ’24. However, the half — H1 FY ’25 is declined by 4.2% to 4.45 lakh unit as against 4.64 lakh units in H1 FY ’25. Within CVs, M&HCV sales recorded a decline of 12.2% in Q2 FY ’25 and it stands at 82,409 units as against 93,874 units in Q2 FY ’24. LCV sales too recorded a decline of 11% in Q2 FY ’25 and stands at 1.38 lakhs unit versus 1.54 lakhs unit in Q2 FY ’24. Passenger vehicle sales in Q2 FY ’25 recorded a decline of 1.8% in Q2 with 10.55 lakh units being sold against 10.74 lakh unit in Q2 FY ’24.
Two-wheeler recorded a growth of 12.6 with sales of 51.79 lakhs unit in Q2 FY ’25 as against 45.98 lakh units sold in Q2 FY ’24. Three-wheeler registered a growth of 6.6% with 2.09 lakh units sold versus 1.96 lakh units sold in Q2 FY ’24. Tractors marginally declined with 2.08 lakh units as against 2.19 lakh units in Q2 FY ’24. Construction equipment remained flat with 27,382 units sold versus 27,478 units sold in Q2 FY ’24. During — in the Board meeting, we also had two major decisions by the Board. One, we have gone ahead with the stock split wherein the face value has now INR2 instead of INR10 that will be five times that — split into five and we also — board also has recommended — Board has declared a dividend of 220%, that is INR2[Phonetic] per share for the first-half of the year. Now I request Y.S. Chakravarti to take through the operational performance. Thank you.
Y.S. Chakravarti — Managing Director
Thank you Umesh. Good evening — good morning and good evening to all the participants in the call. I welcome you to — all of you to our quarter two financial year ’25 earnings call. And I trust you had the opportunity to read the results and related investor presentation, which has been posted on the website of the stock exchanges. We have registered a disbursement growth of 15.51% year-on-year. Our disbursements in quarter two FY ’25 this year aggregated INR39,974.09 crores versus INR34,605.61 crores in quarter two FY ’24. Our assets under management as on 30th September 2024 registered a growth of 19.94% over Q2 FY ’24 and a 4.11% sequentially.
Our AUM stood at INR2,43,042.55 crores as against INR2,02,640.96 crores a year ago and INR2,33,443.63 crores in Q1 FY ’25. Our net interest income has registered a growth of 16.37% year-on-year in quarter two FY ’25. We have earned a net interest income of INR5,606.74 crores in Q2 FY ’25 this year as compared to INR4,818.18 crores in Q2 FY ’24. Our net interest margin was 8.74% as against 8.93% in Q2 FY ’24 and 8.79% in Q1 FY ’25. Our profit-after-tax grew by 18.3% in the current quarter — sorry, in Q2 FY ’25 over Q2 FY ’24 and by 4.58% over quarter one FY ’25. We have registered a profit-after-tax of INR2,071.26 crores for Q2 FY ’25 as compared to INR1,750.84 crores in Q2 FY ’24 and INR1,980.59 crores in quarter one FY ’25.
Our earnings per share for the quarter stood at INR55.09 as against INR44.67 in Q2 FY ’24 and INR52.70 in Q1 FY ’25. On our asset quality, Gross Stage 3 in Q2 FY ’25 stood at 5.32% and Net Stage 3 at 2.64%. These numbers thus show an improvement over the corresponding period of 5.79% gross and 2.8% net in Q2 FY ’24 and 5.39% gross and 2.71% in Q1 FY ’25. Our credit cost for Q2 FY ’25 stood at 1.84% as against 2.02% for Q2 FY ’24 and 1.87% for Q1 FY ’25. Our cost-to-income ratio was 27.95% in the quarter two FY ’25 as against 27.34% recording — recorded in Q2 FY ’24. Our cost-to-income ratio in quarter one FY ’25 was 27.45%.
Regarding our subsidiary, Shriram Housing Finance Limited, as you all know, the Board of Directors of the company in its meeting held on May 13, 2024 had approved the proposal for disinvestment of the company’s entire stake in Shriram Housing Finance Limited. This is a debt listed non-material subsidiary of the company and in this regard, the company has entered into the share purchase agreement, inter-alia with Mango Crest Investment Limited an affiliate of Warburg Pincus. The company’s investment in Shriram Housing Finance Limited has been classified as non-current assets held for sale and disclosed as discontinued operations in the financial results. However, Shriram Housings AUM as on Q2 FY ’25 exhibited a growth of 40.87% and stands at INR15,236.26 crores as against INR10,816.03 crores in Q2 FY ’24.
Net interest income registered a growth of 15.5% in Q2 FY ’25 over Q2 FY ’24. Net interest income for Q2 FY ’25 was INR112.46 crores as compared to INR97.43 crores in Q2 FY ’24. Shriram Housing Finance registered a profit-after-tax growth of 36.87% in Q2 FY ’25 over Q2 FY ’24. PAT for the quarter of this year was INR66 crores as compared to INR48.22 crores. The EPS stood at INR1.83 — INR1.83 against INR1.48 in Q2 FY ’24. Shriram Housings Gross Stage 3 for Q2 FY ’25 stood at 1.22% and their Net Stage 3 came in at 0.93%. In comparison, these numbers were 1.08% on gross basis and 0.83% on net basis in Q2 FY ’24. I shall now request our Managing 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 accounting and regulatory aspects. Thank you.
Parag Sharma — Chief Financial Officer
Hello, everyone. I am Parag. The total debt outstanding as of September ’24 is INR2,07,820 crores broken up into term loans of INR51,123 crores, which is 24% of our liabilities. Securitization is INR34,467, which is 16% of our liability. Our external commercial borrowing both from the loan and the bond route is INR31,752 which is 15% of our liability. Domestic capital market bonds subject constitute INR40,281 crores, which is 19% of our liability and retail deposits, which is INR50,196[Phonetic], which is 24% of our liability. So well-diversified liability mix and that mix has been in line with the previous quarter and also as of March ’24.
We also do direct assessment[Phonetic] transaction for some of our asset classes and that outstanding is close to around INR3,000 crores, which will be an off-balance sheet item. The cost of liabilities is 8.97%, 1 basis-point up from the June ’24 quarter and slightly down from the March ’24 number. The leverage ratio stands at 3.99%, which was 3.79% in June and as of March it was 3.83%. The liquidity coverage ratio is healthy at 234% and June it was 225.19%. So we always maintain more than three months of liability repayment into liquid assets and that is slightly more than INR17,000 crores and three months liability is around INR16,700 crores, which includes the retail liabilities also.
The incremental cost of fund has been in line and slightly lower than the liabilities cost on the balance sheet. So that indicate that there could be — we can maintain the liability cost of debt or maybe slightly can improve over a period of time. The ALM buckets continue to be positive and up to six months, the cumulative surplus will be around that — more than INR35,000 crore and up to one year will be around INR50,000 crores. The funds mobilized this quarter has been, I’ll say strong and securitization and direct assignment — direct assignment transaction has been in excess of INR10,000 crore. We have also done and ECB bond, which was concluded during end of September, which was INR4,000 crore and bank borrowing continues also to be strong, more than INR5,000 crore borrowed through the bank loan route and NCDs have been at around INR7,000 crore.
Now with this, I hand over to Sunder for his comments on the [Indecipherable].
S. Sunder — Joint Managing Director
Thank you, Parag. The employee count as on 30th September was 77,764 as against 75,813 in June quarter and net increase of 1,951 employees. The — some data points on the ECL, the Stage 1 PD was 9.06% and the Stage 2 PD was 20.98% and the LGD stood at 38.59%. Coming to the disbursements segment-wise, the CV disbursements were at INR15,004 crore. Passenger vehicles was INR7,595 crores, conception equipment was INR2,267 crores. Farm equipment was INR899 crores. MSME was INR6,875 crores. Two-wheeler was INR2,555 crore. Gold was INR2,697 crores and personal loan was INR2,081 crores, totaling to INR39,974 crores.
With this, we’ll just open up for the questions and we’ll be happy to answer your questions. Thanks.
Questions and Answers:
Operator
Thank you. [Operator Instructions] The first question is from the line of Chintan Joshi from Autonomous. Please go ahead.
Chintan Joshi
Hi, good evening. Can I ask on a few different areas. So first question would be that we are seeing slippages and Gross Stage 3 loans are increasing kind of multiple players in the sector. What would you say as the reason that you haven’t seen a similar deterioration?
Umesh Revankar
This slippage has actually improved as a percentage.
Chintan Joshi
Just trying to understand why it has improved because everybody else is seeing a deterioration.
Umesh Revankar
Okay. Yeah. As an industry, if you see and certain segments, mostly the — as RBI has been talking, unsecured loan, MFI loans and that too in certain geography, there has been little higher slippage. I feel it is basically the local economic activity being a little weaker, that could be the reason.
Chintan Joshi
Okay. Secondly, can I check, operating expenses have increased 8% quarter-on-quarter. Is there some reason for that, any one-offs in there to flag?
S. Sunder
No, no, there were some fees paid in the current quarter due to increased two-wheeler and other loans wherein, which was sourced through the direct sourcing agents. And there were also some cost incurred on our branding front. So apart from this, it was a normal increase.
Chintan Joshi
So do you think it shouldn’t — we shouldn’t expect similar increases in the next few quarters?
S. Sunder
Yeah, it will not be to this level, but there will be some increase, no doubts.
Chintan Joshi
Some inflation, yeah. And then finally and a quick one, how do you — how do you think asset quality and cost-of-risk trends develop over the next six to 12 months? What is — what do you see in your portfolio that gives you reasons to — what are the risks that you see and what are the trends that you see in your portfolio?
Umesh Revankar
See, we don’t really see any further improvement in our asset quality. There may not be anything adverse now because economic activity being very strong, the foundation of the country is very strong and government spend on infrastructure is likely to improve in the next two quarters. That will help the economic activity to improve. And the festive period with good monsoon and a good Kharif crop and better MSP price, all are likely to help be very positive for next two quarters. I don’t really see any possibility of deterioration. So we are targeting to improve our Stage 3 to around 5% level.
Chintan Joshi
Excellent. Thank you.
Operator
Thank you. The next question is from the line of Avinash Singh from Emkay Global. Please go ahead.
Avinash Singh
Thanks for the opportunity. So couple of questions.
Operator
Sorry to interrupt, sir. Could you come a bit close to your handset?
Avinash Singh
Is it better now?
Operator
Yes, sir, go ahead.
Avinash Singh
Yeah. So couple of questions. The one would be on, you know again continuing on the stress part. So I mean you named I will like the MFI[Phonetic] and a few other segment. But the personal loan segment also is seeing a bit of a rise — rise in stress. Now in this backdrop, your portfolio seems to be doing fine. Now the thing is that, I mean, what kind of a growth you are seeing there and if at all, any sort of a color on future delinquencies in this PL segment? So that was the first question. And if you can just help us with kind of a growth in this used CV segment or LCV segment, how do you see growth panning out for the rest of the year in that segment? Thanks.
Y.S. Chakravarti
Yeah. Hi, this is Chakravarti here. On the PL side, the — most of the stress that is visible in the market today is in your BNPL and the small-ticket personal loan space. See, even within the industry players where you have a larger ticket personal loans, basically for prime and super-prime segment of customers, the stress is there is — the portfolio is performing well. And as far as Shriram Finance is concerned, 97%, 98% of my disbursement goes to my existing customer, either he is a two-wheeler customer who has finished 75% of his loan tenure or a personal loan customer who has finished repayment of his one loan and coming for a second loan.
So we don’t see — I mean, the quality of the portfolio is not the reason why we have slowed down, but it is also just to give a comfort to — I mean, so since there is a lot of concern around on the — on portfolios, on personal loan, we have actually what we did was we have tightened — further tightened our criteria for giving a loan to our existing customers and that’s a — that’s one of the reasons why you see that slowdown. But going-forward, we will wait for a couple of quarters before the industry and the regulator gets comfort and then we will increase this portfolio. And as far as growth in CV is concerned, I think we should grow our CV portfolio anywhere from — next two quarters should grow at 17% and 18% comfortably.
Avinash Singh
Okay. Thank you.
Operator
Thank you. The next question is from the line of Gopinandan Reddy from PNR Investments. Please go ahead.
Gopinandan Reddy
Sir, is there any area where we have — we have noticed any pain points that are coming up? I mean, I’m asking this question given the current situation in other companies where everywhere we can see the stress. Is there any area where either — anything else where there is an increase in problem areas?
Umesh Revankar
So none of the asset-backed loans that we don’t — we see any issues. And as I was telling you, the — there is a geography specific and segment-specific challenges. See, one of the area which is a little where you see the challenges are where people are over-leveraged, that individuals are over-leveraged and there is excessive lending to them. That is in few locations there are challenges.
Gopinandan Reddy
So I’m asking for our company — sorry, I’m asking for our company, sir.
Umesh Revankar
Our company, no. We don’t see any area.
Gopinandan Reddy
Fine sir. The second one is not a question, sir, just an advise. This initial introduction about the Indian economy, all this information world, it is flooded, sir. Everybody is already aware we better have question-and-answers in that time. That is my advise. Thank you.
Umesh Revankar
Good. Thank you.
Operator
Thank you. The next question is from the line of Shubhranshu Mishra from PhillipCapital. Please go ahead.
Shubhranshu Mishra
Hi, sir. Good evening. Thanks for the opportunity. Two quick questions. The first one is, we’ve got the number of customers on Slide number 13, which is around 90 lakh customers, but I guess that is the outstanding number of customers. How many customers do we bank on a monthly basis? And of those bank customers, how many customers would have more than two trade lines, not necessarily with us, but a bureau report, which would be accessing for these customers. So how many of these monthly bank customers would have more than two trade lines? That’s my first question, sir.
The second one is that we have a lot of customers in rural areas and semi-urban area these are you know areas where we are seeing a certain level of stress than unsecured credit cards or personal loans or MFI or one of the other exposures. It sounds a little out of back that our customer segment is absolutely immune to this. So wanted your qualitative views on this? And the third-part, sir, if you can just repeat the disbursement mix, sir, that’s just a datakeeping question. Thanks.
S. Sunder
Okay. As far as the disbursement, I’ll just repeat it. Commercial vehicles, INR15,004 crores, passenger vehicles INR7,595 crores, construction equipments INR2,267 crores, farm equipments INR899 crores, MSME is INR6876 crores, two-wheelers INR2,555 crores, gold INR2,697 crores, personal loan INR2,081 crores, totaling to INR39,974 crores. And as regards to your first question regarding that [Indecipherable], so that I would suggest that you contact Mr. Mundra off-line, so he will be able to help you out.
Shubhranshu Mishra
Sir, two-wheeler, gold, and total, if you can repeat, sir, it was a little fast for me.
S. Sunder
Two-wheeler was INR2,555 crore, gold INR2,697, personal loans INR2,081 crores.
Shubhranshu Mishra
And total sir.
S. Sunder
INR39,974 crore.
Shubhranshu Mishra
Okay, sir.
S. Sunder
Yeah. Thank you.
Operator
Thank you. The next question is from the line of [Indecipherable] Financial Services. Please go ahead.
Unidentified Participant
Good evening, sir. I’m very glad to connect with you. Thanks for this opportunity. So my main doubt I had was that you would be focusing more on short tenure products like personal loans and two-wheelers for improving the bottom-line growth rather than the AUM mix. So I would just like to have your views on the personal loans because it has declined. And on previous quarters, it was mentioned that this would be the last quarter of decline in personal loan. So could you just let me know your views on that?
Parag Sharma
No, as I said, we probably — as I told you, once we are able to give the comfort to the market and the regulator that our portfolio is doing well, we will grow. So this two quarters, we should improve the disbursements.
Unidentified Participant
Okay, sir. So — and if I may know-how much — how better are the margins for personal loan?
Parag Sharma
Sorry, how?
Unidentified Participant
How — how the margins are expected to improve for personal loan.
Parag Sharma
See, margins — personal loan is what — personal loan portfolio and that portfolio is about 3%. So even if I improve the margin by 100% also, it is not going to create a big dent on the overall. But as a — as a standalone thing, I think we should be able to manage our — maintain our average yield, which are around, I mean, we have a product going from 12% up to 27%, 28%. So within that basically the mix will remain the same.
Unidentified Participant
Alright. Alright sir. Thanks a lot for the opportunity. Thank you.
Operator
Thank you. [Operator Instructions] The next question is from the line of Chintan Joshi from Autonomous. Please go ahead.
Chintan Joshi
Hi, sorry, I thought there’ll be more questions. Can I come back on your expectations for your net interest margin over the next year? And also how do you think with the RBI rate cuts, how do you think your margins will behave?
Umesh Revankar
See, net interest margin should remain at present level. As far as the RBI rate cut and the — no, that is something very subjective. So it depends upon when exactly they will look for — look for a rate cut. So I — [Speech Overlap] unlikely to be before February. So only then we’ll be able to address that. So I don’t really see any immediate improvement in our funding cost.
Chintan Joshi
Yeah, okay. And if we get a 50 basis-point rate cut, what would your sensitivity be to your NIMs?
Umesh Revankar
See, obviously when there is a rate cut, when the banks start passing on that benefit to us, that benefit will accrue to us. So it will come at a lag. So we can’t — we know telling it in advance.
Chintan Joshi
Okay, thank you.
Operator
Thank you. The next question is from the line of Kunal Shah from Citigroup. Please go ahead.
Kunal Shah
Yeah. So on yields, have we seen improvement actually in this particular quarter or maybe is it because of the mix change or something because on a calculated basis, it seems to be an improvement.
Umesh Revankar
See, [Technical issue] I do not think there is any improvement. Yield remains same Kunal.
Kunal Shah
Oh, yes. It has remained same. So there is no — maybe — and neither in terms of the pass-on benefit or repricing of fixed-rate book and that has happened, yeah, because cost of funds are just stable. So just wanted to check on the yield side.
Umesh Revankar
No, it’s more or less same. Not much of a change.
Kunal Shah
Okay. And secondly, in terms of an update on maybe the interactions with the rating agencies, yeah so maybe in terms of the upgrades or something yeah.
Umesh Revankar
I think the dialogue continuously on with them, we are impressive upon the improvement in asset quality and the diversity of our mix on assets and liability. But I think, yeah, we are — as of now, we are — I think we’ll keep our vendors crossed and keep the dialog on. Let us see when we are able to develop on them.
Kunal Shah
Yeah, because it’s been quite a consistent performance all through so not sure in terms of maybe when does that happen with respect to the rating upgrade yeah. Okay. Okay. Yeah. Thank you.
Operator
Thank you. The next question is from the line of Raghav Garg from Ambit Capital. Please go ahead.
Raghav Garg
Hi, thanks for the opportunity. My first question is on the gold loan portfolio. Why has the growth come down again in this quarter? It seems to be a 12% Y-o-Y and there seems to be a decline quarter-on-quarter.
Umesh Revankar
Primarily, it’s come down because we have reduced our LTE and goal to about — around 60%, 65%. So that’s one of the primary reasons why the disbursement has come down.
Raghav Garg
Okay. As opposed to what before?
Umesh Revankar
About 70% to 73%.
Raghav Garg
Okay. And what was the reason for that, sir? I mean, why do you?
Umesh Revankar
What is happening is — so since most of the gold is a bullet payment, there is principal and interest to be repaid. What’s happening is they are breaching the 75% LTV norms within a short period of time. So — and we are actually providing the moment it breaches to 75% LTV now we are actually classifying it as an NPA, but the regulator advised us that it’s a lot of cases, it is happening. They advised that it is better to reduce rather than provide. So we’ve done that.
Raghav Garg
Sir, I’m sorry, why is it that they are breaching the LTVs norms of 75%. I did not get that?
Umesh Revankar
See, basically, your exit LTV, your LTV, the norm is 75% of the loan to value of the gold. That is an exit LTV that is prescribed, not entry. So your accumulated interest plus principal, cannot cross 75%. [Speech Overlap] You actually keep — you need to classify it as an NPA and call the customer or try to auction of the gold. So since it is happening, because your LTV is about 72% and it is touching 75% quite fast. The regulator has advised why don’t you actually instead of providing why don’t you reduce the LTV. So we took the advise and reduced.
Raghav Garg
Sir, you mentioned — just to clarify, you mentioned the 75% LTV norm for NBFC, that is the exit LTV, when you close the [Speech Overlap]
Umesh Revankar
No, no, no. Even for banks. It’s the same for NBFCs and banks.
Raghav Garg
Okay. Understood. And sir, another question on the vehicle finance that for the other two large auto NBFCs, we’ve seen slippage increase quite a bit. It has happened for you also. But I think this increase in slippage is a bit lower. Is that something that you’re doing on the ground to push your branch people to collect just to perform better on collection versus what the other auto NBFCs are doing or the trends that they are seeing?
Umesh Revankar
I mean, let me put it this way. I don’t know about other NBFCs, but I think — also majority of the portfolio would be new vehicles, whereas for us, majority of the portfolio is U.S. vehicles, one. Two, basically, what we see on the ground is basically better improved utilization of the vehicle because lesser turnaround time, and improved load. So typically, the running killer method has increased for most of this vehicle. So cash flows also has improved. So that is also one of the reasons why we’re able to handle — manage the delinquency that is there like these numbers.
Raghav Garg
But sir, I mean I think at the start of the call, there was a comment that the government spending has reduced. And generally, what you see is that it tends to impact the operators as well. So you’re saying despite that the cash flow and the general load carrying momentum has been good for the operators in the ground level?
Umesh Revankar
No, no, no, — the comments were aimed at when we are talking about the new vehicle sales, right? Particularly for medium and heavy vehicles and also [Indecipherable] LCV but that is for new vehicle sales. I think the one thing — one factor that is going on [Indecipherable] for used vehicles there is today new capacity — excess capacity is not coming into the market. The existing capacity is being utilized better. And in fact, used vehicle prices are holding very steady. What happens is when the government is spending on infrastructure, additional demand comes for new vehicle sales. And therefore, the additional demand did not come because government has spent less. But otherwise, the existing portfolio, existing — what we call the customers have sufficient business, and it’s quite profitable. Therefore, quality is improving way better.
Raghav Garg
Got it. Understood sir. Thank you. That is all from my side.
Operator
Thank you. The next question is from the line of Gopinandan Reddy from PNR Investments. Please go ahead.
Gopinandan Reddy
Sir, we have been giving consistent results outlet from the time the companies are merged and becomes Shriram Finance. Is it — Is the improvement in consistency in the performance attribute how much is it attributable to the economy — economic situation that is right now? And how much is it for any changes made in the way we are executing things? What are all the changes that we have done that are giving this consistency. That is [Indecipherable]
Umesh Revankar
See, basically, when economy is doing good, all the parameters of any company which is dependent on economy will do well. So that is a natural, what I call, a linkage you can establish. Otherwise, company has been there as an entity for nearly 50 years. Shriram in the financing[Phonetic]. So we have our own DNA, our own strong culture. And that has been helping us to understand the environment, understand the customer and respond to the customer much better. So we have been improving over the period and will continue to improve.
Gopinandan Reddy
Okay. The next question is somebody already asked, when it comes to rating agencies. What is it that they are expecting us to improve up on for rating upgrade? Is there anything specific or just we don’t know?
Umesh Revankar
Nothing specific. They’d like to see overall progress. They waited for one year to complete post-merger whether this merger will go through smoothly and efficiently, which we have now demonstrated. Probably, they would also like to see these macroeconomic advantage to continue for some more time before they content to further improvement.
Gopinandan Reddy
Sir, one last question. Do you see that the merger benefits [Indecipherable] already are we have some more sting left in cross selling king of things?
Umesh Revankar
See, we have a reached all the branches with the products the MSME gold has not reached to all the geography, all the branches. There is some more scope for improvement.
Gopinandan Reddy
Okay. Thank you. That is all from my side.
Umesh Revankar
Okay.
Operator
Thank you. Ladies and gentlemen, that was the last question for today. We have reached the end of our Q&A session. I now hand the conference over to Mr. Umesh Revankar, Executive Chairman; for closing comments.
Umesh Revankar
Thank you all for joining. As you know, second quarter is normally a tricky quarter because excess rain or shortfall in rain makes the difference in Indian economy and the overall credit demand. With good rainfall and good output in the rural agri output I think we can expect a better half in the October to March. So with the hope that things will further improve, credit demand will further improve, I would like to say bye and catch up next time. Thank you very much.
Operator
[Operator Closing Remarks]