Shriram Finance Ltd, India’s one of the biggest retail NBFC offering credit solutions for commercial vehicles, two-wheeler loans, car loans and home loans, in its Q4 earnings call projected segment-wise growth of 12-15% for commercial vehicles and 20% for both passenger vehicles and MSME, with an overall growth guidance of 15%. Management addressed temporary stress in rural areas, particularly in border regions of UP, Bihar, and MP, but expressed confidence in improvement due to favorable monsoon predictions. Company’s MSME portfolio is 70-80% secured by real estate with average ticket sizes of 5-6 lakhs and yields of 16-24%. Management explained technical write-offs that reduced their provision coverage ratio from 51% to 43%, which they consider adequate. Excess liquidity impacted Net Interest Margin by 20-25 basis points, and they expect cost-to-income ratios to improve to 27-28% within a year.
Shriram Finance delivered a mixed Q4 performance, with net profit rising 6% year-over-year, missing analyst expectations due to a 31% surge in financing costs, though bolstered by a 20% year-over-year increase in net interest income (NII). Revenue from operations grew 21% year-over-year, driven by a 14.04% year-over-year rise in disbursements, despite a 6.62% quarter-over-quarter decline, while assets under management (AUM) expanded 21% year-over-year to INR263,190.27 crore, marking the slowest growth in eight quarters. Net interest margin (NIM) varied. In the quarter, Shriram Finance divested its stake in Shriram Housing Finance to Warburg Pincus, yielding a INR1,489.39 crore one-time gain, raised $1.28 billion via a multi-currency social loan, and launched digital payment services like mobile wallets and prepaid cards. The company targets 17-18% AUM growth for FY26, up from 15%, driven by passenger vehicle and SME loans, with plans to deploy INR30,000 crore in excess liquidity to boost NIM to 8.80%, supported by RBI’s eased micro-loan capital rules.
Continue Reading: Unearth the Vital Insights from Shriram Finance Ltd’s Earnings Call!
Financial/Operational Metrics:
- Revenue: INR11,454 crores, up 21% YoY.
- Net Income: INR2,144 crores, up 6% YoY.
- EPS: INR11.4, up 7% YoY.
- Net Profit Margin: 19%.
Outlook:
- Macroeconomic Tailwinds: Rural credit demand expected to benefit from strong agricultural growth of 3.8%.
- Borrowing Costs: RBI’s recent 25 bps repo rate cut expected to lower borrowing costs over next 3-6 months.
Analyst Crossfire:
- Asset Quality & Rural Resilience & Direct Assignment Income(Chintan Joshi – Autonomous): While provisioning costs rose slightly, rural strength and secured assets are expected to buffer against urban slowdowns; credit cost likely to remain below 2%. No large direct assignment transactions were done during the year; higher income this quarter not related to DA, and further reconciliation will be provided offline (Umesh G. Revankar – Vice Chairman & CEO, S. Sunder – CFO).
- CV Portfolio Growth & Credit Cost Outlook (Raghav Garg – Ambit Capital): CV loan growth slowed to ~10% due to flat vehicle sales and fewer used vehicle transactions; growth expected to rise to 12–15% in FY26 as used vehicle supply improves. MSME growth to moderate to 18–20% in FY26 from 30% in FY25 due to a higher base and branch expansion post-merger (Umesh G. Revankar – Vice Chairman & CEO).
- Stage-2 Asset Management & Gold Loan AUM Shrinkage (Rajiv Mehta – YES Securities): Despite a rise in Stage-2 for MSME and passenger vehicles, most customers are expected to remain stable or revert, not slip to Stage-3. Despite rising disbursements and gold prices, portfolio contracted due to higher redemptions; AUM expected to grow going forward (Y.S. Chakravarti – MD & CEO).
- Segmental Growth Guidance & Personal Loan Strategy (Piran Engineer – CLSA): Growth projections reaffirmed—CV (12–15%), passenger vehicles (20%), MSME (20%+), with used CV segment gaining traction over 2–3 years. Resumed growth driven by confidence in asset quality and regulatory comfort; loans are primarily extended to existing, proven customers (Umesh G. Revankar – Vice Chairman & CEO).
- Provision Coverage & Tax Benefit, Interest Expense Drivers (Kunal Shah – Citigroup): Provisioning coverage dropped from 51% to 43% post write-offs; no plans to raise it further as business conditions normalize. The tax benefit was one-time and fully booked this quarter. No one-off or forex-related costs. Rise in interest expenses is due to increased debt and liquidity, not cost of funds (Umesh G. Revankar – Executive VC, Parag Sharma – CFO).
- Provisioning Guidance & Recovery Outlook on Written-Off Accounts (Renish – ICICI, Adarsh – Enam AMC): No near-term plan to raise PCR to 50%; to be maintained around 40–42% given strong asset backing. Technically written-off assets include both old and recent accounts. Regular recoveries expected through legal and customer follow-ups (Umesh G. Revankar – Executive VC, S. Sunder – Joint MD).
