Shriram Finance Ltd., India’s one of the biggest retail NBFC, in its Q3 earnings call explained that NIM compression was due to excess liquidity and asset mix changes, while maintaining confidence in keeping credit costs below 2% despite some increase in Stage 3 assets in Commercial Vehicle (CV) and MSME segments. Loan-to-Value (LTV) ratios remain at 70% for used vehicles, and they’re optimistic about fleet utilization and operator economics in the CV segment, having also entered EV lending. The company expects the cost-to-income ratio to moderate to 28% and attributed temporary gold loan de-growth to seasonal festival-related redemptions. In two-wheeler financing, the management aims to grow at double the market rate plus 2%, targeting new customers.
Shriram Finance reported strong financial results for Q3, with consolidated net profit increasing by 73% year-over-year. The company’s total income rose by 20%, while net interest income grew by 14.31% to INR5,823 crore. The NBFC’s asset quality improved, with gross NPAs declining to 5.38% from 5.66% and net NPAs decreasing to 2.68% from 2.72% year-over-year. Total assets under management increased to INR2,54,469.69 crore, up 19% year-over-year. The company expects to maintain mid-teen growth in FY26 supported by GDP growth above 6.5%, with plans to freeze hiring and focus on digital platform-driven productivity improvements.
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Financial/Operational Metrics:
- Revenue from Operations: INR10,698 crores, up 20% YoY.
- Net Profit: INR3,249 crores, up 73% YoY.
- Earnings Per Share: INR17.27, up 74% YoY.
- Net Interest Income: INR5,822.69 crores, up 14.31% YoY.
- Total Assets Under Management: INR2,54,469.69 crores, up 18.78% YoY.
Outlook:
- Government Spending: Expected to increase with new projects and budget announcements.
Analyst Crossfire:
- NIM Decline & Liquidity Impact, Asset Mix & NIM Trends (Chintan Joshi – Autonomous): The drop in NIMs was mainly due to excess liquidity, causing a 20 bps impact. As liquidity normalizes over the next two quarters, margins should recover. NIMs are also affected by the asset mix, particularly higher demand for new vehicle loans, which have lower yields. The impact varies based on the new-to-used vehicle ratio (S. Sunder – Joint MD, Parag Sharma – MD & CFO).
- Liquidity Management & Borrowing Plans, Gold Loan Portfolio Performance (Raghav Garg – Ambit, Bhumin Shah – Sameeksha): Excess liquidity will be reduced gradually over the next two quarters, with borrowing moderation planned to align with the company’s three-month liquidity policy. Gold loan AUM saw sequential decline, but Stage 3 assets remained stable in absolute terms. Growth is expected to pick up in Q4 and the next fiscal year (Parag Sharma – MD & CFO, Y.S. Chakravarti – MD & CEO).
- Fleet Utilization & Operator Profitability, Operating Expenses Increase (Raghav Garg – Ambit, Bhumin Shah – Sameeksha): Despite concerns from other industry players, fleet utilization remains strong with no major idling. Improved infrastructure and GST reforms support operator profitability. Opex rose due to hiring 1,614 employees and increased overheads. The cost-to-income ratio should stabilize around 28% in upcoming quarters (Parag Sharma – MD & CFO , Y.S. Chakravarti – MD & CEO).
- Credit Cost & MSME Portfolio Trends, Gold Loan Portfolio Degrowth (Kunal Shah – Citigroup, Rajiv Mehta – YES Securities): Stage 2 assets in MSME lending appear high, but historical trends show slippages correct over time. No structural asset quality concerns. The decline in the gold loan book is seasonal, driven by festive redemptions, not operational changes. Growth is expected to pick up in Q4 (Y.S. Chakravarti – MD & CEO).
- M&HCV Demand & Infrastructure Spending, Scrappage Policy Impact (Abhishek Jain – AlfAccurate): Demand for medium and heavy commercial vehicles (M&HCV) was sluggish due to elections and heavy rains but is expected to rebound in Q4 as government infrastructure spending increases. The government’s voluntary scrappage policy is unlikely to significantly impact new vehicle sales (Umesh G. Revankar – Executive Vice Chairman).
- Two-Wheeler Loan Growth & Asset Quality, Net Interest Margins (Suraj Das – Sundaram, Sharat Dua – Amundi): The company aims for 12% growth, twice the market rate. Despite concerns in the industry, asset quality remains stable due to strong collection mechanisms. NIMs should improve as excess liquidity is utilized. Seasonal new vehicle demand in Q4 may have some impact, but major effects will be seen in Q1 next year (Y.S. Chakravarti – MD & CEO).
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