I now hand the conference over to Mr. Umesh Revankar, Executive Vice Chairman. Thank you, and over to you, sir.
Yeah, thank you. Good evening, friends from India and Asia, and warm welcome to all of you. Greetings also to those who have joined the call from the western part of the world. To present our Q1 FY 2025 earnings call today, I have with me Managing Director and CEO, Mr. Chakravarti, Managing Director and CFO, Mr. Parag Sharma, Mr. S. Sunder, Joint Managing Director, and also present are Mr. Ravi Subramanian, MD CEO of our subsidiary, Shriram Housing Finance Limited, and Sanjay Mundra, who is our Head of Investor Relations. There has been a good first quarter for the year for the Shriram Finance Limited. Before going to the quarter results, I would like to go to other factors that have helped us. First, look at our Indian economy that has performed quite well in the last financial year. India's GDP growth rate in the quarter ending March 31st grew by 7.8%.
These figures surpass the RBI estimate of 7% according to the projection made in April monetary policy review. GDP growth stands at 8.2% for the full financial year FY 2024 as compared to the growth rate of 7% in the FY 2023. Earlier, the government estimation was at 7.6%. The real GDP growth is expected to grow at 7.2% for the FY 2025. On inflation, India's CPI inflation in June 2024 stood at 5.08 on the back of higher food prices. The retail inflation in June is the highest in the last four months. Inflation in the food basket rose to 9.36% in June compared with 8.69% in the month of May. While food inflation risks will continue to remain in the near term, we expect better slowing pattern and spatial distribution of rain to ease the price pressure beyond these low volatile months.
The wholesale price index inflation for June 2024 touched a 16-month high of 3.36% after scaling 2.61% in the previous month. In fact, since February 2024, WPI inflation has surged from 0.2% to 3.36%, largely on the back of the spike in wholesale food inflation, and manufacturing inflation is turning negative to positive. RBI, in its MPC meeting held on April 5, 2024, kept the repo rate unchanged at 6.5% and desired to hold key policy rate for eight consecutive times in June 2024. The rural economy this year, IMD has forecast an above-normal rainfall during June-September. The seasonal rainfall is expected to be 106% of long-period average. July rainfall looks promising as the country is expected to continue receiving widespread rainfall in the next 10 days. Rainfall during July adjusts accounts for nearly 70% of India's seasonal rainfall.
In the southern peninsula, monsoon rainfall has been 23.7% more than the benchmark so far, at 78.4 million hectares or 64% of normal zone area. The combined zone area of key crops such as paddy, pulses, oilseeds, and sugarcane was up by 3.5% year-on-year till last week. This is a very good progress in the backdrop of GVA, which is gross value added for agriculture and allied activities in the crop year 2023-2024, which grew just 1.4%. This is the lowest since 2018-19. Even the estimated agriculture output in the last crop year was -6.2%. And on looking at that, we should be having a very good agriculture output due to good monsoon crop year. S&P Global Ratings on May 29 upgraded India's sovereign rating outlook to positive from stable while retaining the rating at BB B minus on robust growth and improved quality of government expenditure.
On the GST, as per the news report going forward, the Finance Ministry will not release monthly detailed GST collection data on the first day of every month. But as per media report, the monthly GST collection is 7.7% greater than the collections made in June 2023 and stands approximately at INR 174,000 crore. Average GST collection from April to June 2024 works out to INR 186,000 crore. Recently, we had a budget announced, and highlights of the budgets are as follows: The Finance Minister highlighted on Navratna the nine areas where sustained efforts are needed to take the country on path of strong development and all-round prosperity to achieve the vision of Viksit Bharat, the highlight of which is of direct impact to us in our business, as follows: One is we focus on agriculture productivity and employment generation.
That will help us in our rural and MSME lending business, and we expect maximum traction here. The budget also provides INR 1,111,000 crore of capital expenditure to improve infrastructure, with special focus being announced with additional facilitation for the eastern part of India, that is Purvodaya, and also some additional financial support for building capital in Andhra Pradesh to the extent of INR 15,000 crore. There is also additional provision of INR 150,000 crore long-term interest-free loans to state governments, which should help in rural and urban infrastructure. Ultimately, this will benefit transportation, manufacturing, and the MSME business. Coming to the auto industry, on oil sales, this quarter has been reasonably good in the first quarter of the financial year. The commercial vehicle has seen a growth of 3.5% to 224,000 units against 217,000 in the Q1 previous year.
Within the CV, M&HCV has grown 9.7% in Q1, which stands at 85,421 units against 77,869 units in the previous year's same quarter. LCV sales have been flat at 1.39 lakh units, with the same number of units in the previous quarter, the previous financial year's first quarter. Passenger vehicle has seen continuous growth. It has registered 3% growth with 10.26 lakh units against 9.97 lakh units in the year-on-year. The two-wheeler has recorded robust growth of 20.4% with sales of 49.86 lakh units against 41.41 lakh units sold in Q1 2024. The three-wheeler again has registered good growth with 14.2%, which is 1.65 lakh units against 1.45 lakh units. Tractor has grown mainly because of the lesser output in the last year in the agricultural side, but we expect with good monsoon this year to improve in the Q2.
The numbers were 1.98 lakh units against 2.25 lakh units in the previous year. Construction equipment has registered a growth of 4.6% with 26,010 units against 24,086 units sold in the previous year. With this, now I'll ask my colleague, Mr. Chakravarti, to take us through the operational performance. Thank you.
Thank you, Umesh. Good evening, and welcome all of you to our quarter-one FY 2024 earnings call. I trust you have had the opportunity to review them and the related investor presentations, which have been posted on the website of the stock exchanges. We have registered disbursement growth of 23.82% YOY. Our disbursements in Q1 FY 2025 this year aggregated to which is INR 37,709.79 crores versus INR 30,454.81 crores in Q1 FY 2024. Our Assets Under Management as of 30 June 2024 registered a growth of 20.82% over Q1 FY 2024 and 3.82% sequentially. Our AUM stood at INR 233,443.63 crores as against INR 193,214.67 crores a year ago and INR 224,861.98 crores in Q4 FY 2024. Our net interest income in Q1 FY 2025 registered a growth of 20.63% year-on-year. We earned a net interest income of INR 5,354.47 crores in Q1 FY 2025 this year as compared to INR 4,438.68 crores in Q1 FY 2024.
Our net interest margin was 8.79% as against 8.33% in Q1 FY 2024 and 9.02% in Q4 FY 2024. Our PAT grew by 18.21% in Q1 FY 2025 over Q1 FY 2024 and by 1.78% over Q4 FY 2024. We have registered a PAT of INR 1,090.59 crores for Q1 FY 2025 as compared to INR 1,625.44 crores in Q1 FY 2024 and INR 1,945.87 crores in Q4 FY 2024. Our earnings per share for the quarter stood at INR 52.70 as against INR 44.73 in Q1 FY 2024 and INR 51.79 in Q4 FY 2024. On our asset quality, our gross Stage III in the current quarter stood at 5.39% and net Stage III at 2.71%. These numbers show an improvement over the corresponding period of 6.03% gross and 2.96% net in quarter one FY 2024 and 5.45% gross and 2.70% net in Q4 FY 2024.
Our credit cost for the quarter FY 2025 Q1 stood at 1.87% as against 1.62% for Q1 FY 2024 and 2.06% for Q4 FY 2024. Our cost-to-income ratio was 27.45% in Q1 FY 2025 as against 28.85% recorded in Q1 FY 2024. Our cost-to-income ratio in Q4 FY 2024 was 26.61%. Regarding our subsidiary, Shriram Housing Finance, as you all know, the Board of Directors of the company in its meeting held on May 13, 2024, has approved the proposal for the divestment of the company's entire stake in Shriram Housing Finance Limited, a debt-listed non-material subsidiary of the company. In this regard, the company has entered into a share purchase agreement with Mango Crest Investment Limited, an affiliate of Warburg Pincus. The company's investment in Shriram Housing Finance Limited has been classified as assets held for sale and disclosed as discontinued operations in the financial results.
However, Shriram Housing's assets under management as of 30th June 2024 exhibited a growth of 50.93% and stands at INR 14,397.30 crores as against INR 9,539.37 crores in Q1 FY 2024. The net interest income of Shriram Housing Finance Limited registered a growth of 40.62% in Q1 FY 2025 over Q1 FY 2024. Net interest income for Q1 FY 2025 was INR 119.91 crores as compared to INR 85.27 crores in Q1 FY 2024. Shriram Housing Finance has registered a PAT growth of 5.85% in Q1 FY 2025 over Q1 FY 2024. PAT for the quarter of this year was INR 48.31 crores as compared to INR 45.64 crores. The EPS stood at INR 1.34 against INR 1.40 in Q1 FY 2024. Shriram Housing's gross Stage III for Q1 FY 2025 stood at 1.24%, and their net Stage III came in at 0.94% in comparison. In comparison, these numbers were 1% on gross basis and 0.75% on net basis in Q1 FY 2024.
I will now request our MD and CFO, Mr. Parag Sharma, to take you through our resource-vision activities, after which our Joint Managing Director, Mr. S. Sunder, will brief you about our accounting and regulatory aspects.
Hello everyone. The total debt as of June quarter end was INR 191,745 crore, broken up into retail deposits at 24%, capital market instruments, NCDs at 20%, ECBs, external commercial borrowing, both in the loan and the bond formats stood at 14%. The securitization outstanding is at 15%, and term borrowing from bank and institution is at 26%. Total cost of debt has marginally come down from March end numbers, which was 9.01% to 8.96% now. The leverage ratio stands at 3.79 versus 3.83 as of March end. The liquidity coverage ratio is 225.19, marginally up from 195.55 as of March.
Overall liquidity, we continue to maintain three months of liability repayment into liquid assets, and that continues to be at least INR 15,229 crores of liquidity as of June. The incremental cost of funds is at around 8.8%, which is slightly down from the previous quarter, which was at 9%. ALM buckets, all buckets continue to be positive. Short-term buckets up to one year continues to be positive, and the six-month surplus, cumulative surplus will be INR 20,000 crores plus. That handed over to Sundar for.
A couple of those data points. The employee accounts as of the date June was 75,813 as compared to 74,645 in March. The Stage I PD in case of ECL was 9.02. Stage II PD was 20.39, and LGD was 38.42. Segment-wise disbursement, commercial vehicle contributed to INR 14,024 crore, passenger vehicle INR 7,406 crore, construction equipment INR 1,850 crore, farm equipment was INR 820 crore, MSME INR 6,207 crore, two-wheeler was INR 2,732 crore, gold was INR 2,652 crore, and PL was INR 2,014 crore. Total income INR 37,709 crore. The breakup of the credit cost was INR 599 crore on account of bad debts and INR 588 crore of impairment loss. Yeah, with this, I hand over the mic to the moderator.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. First question is from the line of Chintan Joshi from Autonomous. Please go ahead.
Thank you. Can I ask a question on cost of funds? How do you expect it to develop over the next few quarters? And on a medium-term view, what strategy are you following to get a credit rating upgrade?
Yeah, so on the cost front, as of now, it looks to be quite stable. We don't expect much change from the current level, which was closer to 9%. We are well diversified when it comes to sources, and the diversity will continue to be there. The focus is there on retail deposits, securitization, which is one of the cheapest sources of funds for us. We also have large offshore borrowing programs, and that will continue to be tapped as and when the opportunity arises. The dialogue is on with all the rating agencies. And other than continuous improvement in our overall business numbers, I don't think there are any factors that rating agencies are concerned about when it comes to diversity of assets, diversity of liabilities, overall merger process, how smoothly it has gone. And seamlessly, we have been able to increase businesses across all asset classes.
I don't think there is anything further when it comes to the performance indicators from the company. The dialogue will be on as I see what is the ultimate timeframe rating agencies are going to get.
Okay. Thank you. The second question is, how should we expect the mix of your AUM to develop over the next one to three years?
AUM? So there could be a percentage point up and down, but I think it's largely because of the predominance of the vehicle portfolio. And since it's also growing, we don't see much of a, there will not be any major change. Though we are focusing on gold loans and MSME loans to grow that book, but at the same time, vehicle loans are also growing. So there would be probably a 2%-3%± here and there, but nothing major change.
Should we not expect the old stock businesses to grow a little faster?
No. We are looking at the truck business to grow at around 12%.
Sorry, can you repeat that?
The old truck business, we are expecting it to grow around 12%.
Okay.
The other products will grow at a faster pace.
Yeah.
For example, MSME, we are looking at growing the book by about 20%+. Two-wheeler, about 15%-18%. So they will grow, I mean, the growth rate will be faster, but the base is smaller.
Chintan, to add that, there will be some upsurge in used commercial vehicle and even passenger vehicle maybe in the next fiscal year, say 2027, because the new vehicle sales cycle has started in 2022. And that to come into the market and having a larger market will take a little time. So right now, we are going at around 12%-15%. But maybe in a year or two, that growth rate can further improve as the market expands.
Thank you.
Thank you. Next question is from the line of Kamal from Investec. Please go ahead.
Hello sir. I just wanted to ask that in this quarter, the gold prices have increased by around 10%-12% quarter-over-quarter. However, our gold AUM is still declining quarter-over-quarter. So can you please help us with the reason on that?
Yeah, so basically, the impact was in this quarter. It's gone down. We have not increased our program rates. We have kept them at what we were doing. It's not that every increase in gold loan price, we increase the lending amount program. So one reason. Secondly, there was also a slight slowdown because of the adjustment from more than INR 20,000 cash disbursement. So there was a little impact of that. And on top of that, we were also, our legacy branches where we were doing gold loans, we actually had to undertake a total revamp of the strong rooms and security measures. So all this has contributed to a little slowdown, but we feel that this quarter and the next quarter should see a good growth.
Okay. So can you please quantify what is the percentage of the gold loan disbursed to bank channels? And what is the percentage you guys have been disbursing by cash, which has affected?
See, anything above INR 20,000 will go through bank. So loans up to INR 20,000 is in cash. The rest of it will be through bank. So our average ticket size is around today about INR 70,000, INR 75,000.
See, it is not affected, I should say. It is basically adjustment time because the industry is undergoing some adjustment. And maybe temporarily, customers may go into a pawn broker for raising money. It is temporary. But everything will come back because all the industry is adjusting, and everyone is in the same decade. So that will help, actually. I feel the industry will go faster post this adjustment. So that will be helpful. And also, we are adding more branches to gold lending because, as Shriram rightly put it, each of the branches needs a certain kind of security requirement to start gold loan.
As we add more number of branches, the growth will come back.
Okay. Thank you, sir. I just want to ask if you could just guide what is the AUM growth guidance for FY 2025 and how do we see the disbursement in the next few quarters?
See, our guidance will remain at 15, but this quarter has been good because we were expecting some kind of slowdown in activity, overall credit uptake because of the election. But we did not see any impact because the election was very smooth and spread across so many states. So it had no negative impact. So credit uptake was good. So we expect the momentum is good. So it will continue to be good for the rest of the year. We don't want to change the guidance around, but we can expect to do much better than the guidance.
Okay. Thank you so much, sir.
Thank you. Next question is from the line of Natraj Shankar from DSP Mutual Fund. Please go ahead.
Hi. Thanks for the opportunity. Two questions. One is on the MSME part and the non-vehicle finance part. As we look forward, and I'm looking at quarter-on-quarter over the next two to three years period of time, how are you managing this? How are you growing differently compared to what others are doing? Can you just help us understand better the nature of the growth that you're doing compared to what others are offering? That will be helpful to understand the quality of the business growth. And secondly, over the next two to three years, as we grow, how is the leadership position today? Is it sorted? All well settled? That will be helpful. Thanks.
See, MSME business, basically, we are lending to customers against the mortgage of property, typically all the larger tickets and most of the loans. So that's where our protocol. We are playing it very safe now. And every cash flow, every business lending, the decision is taken on a cash flow basis only.
Last question. Is it also possible to share if it takes the top three industries within MSME that would be lending? What would those top three industries be?
Yeah. See, basically, our major 70% of our lending goes to small businesses, basically in the service sector and trading sector. So manufacturing would be less than 30% of our total portfolio. Majority of it is towards trading and service industry. And the average ticket size here is about INR 10 lakh.
Okay. Okay. And South versus North South, just a quick follow-up before I move to you.
South versus North. South for MSME will be 60-40. 60 South, 40 North.
As the transition to next two to three years, would the mix be remained the same, or will it be different?
Both markets are growing. So difficult to say, but North, I mean, North South is a much, much larger market for SMEs. And that is where we are focusing on, actually. So we'll have to see. As we create more reach, automatically the proportion will change. But it will take time. It will take three, four, five years to make that kind of a change. So most of the other markets, we are relatively new in the SME segment. Even though in other segments, we are there for quite a long time.
And secondly, on the leadership part, as we build these new businesses and scale up, is the structure in place for leadership across channels? Is there any gaps that exist that we want to plug both at the top and the middle? Can you just show some? Thanks.
In the segment we are in, we are, I think, leaders because most of the SME lending, if you look at, they are either focusing on medium size of around INR 40-50 lakh ticket size. We are in a small ticket. So number of loans and what are called micro entities, enterprises, we are one of the largest. So we do not know the banks, but among the LBFCs, we are the largest in our segment.
I meant leadership in terms of internal capacity.
Yeah, I'm coming there. I'm coming there. So it's pretty—the succession lines are pretty much there. For every position, we have people. In fact, we have multiple people competing that way. So the succession planning is on a continuous basis at every level. There is no gap from the leader. As far as leadership is concerned, there are no gaps, even from levels as low as a branch manager.
Thanks. That's it for me.
Thank you. Next question is from the line of Bunty Chawla from IDBI. Please go ahead.
Thank you, sir. Thank you for giving me the opportunity. In the opening remarks, as you said, there has been a—in fact, incremental cost of funds has been lower as compared to on the books. So what has resulted in 20 basis points decline in sequential margins?
One is the large factor is the liabilities, which were at a much elevated level earlier. The cost of those liabilities, which are matured, was higher. That has really helped. Incremental cost is a mix of securitization transaction what we do with lower. And also, the capital market improvement what we borrowed. That also has slightly come down. So both those factors are helping for the incremental cost being slightly lower. Some of the offshore borrowing also, which is done in the loan format, is cheaper compared to what we were doing in bond format earlier, which was costlier. That is incremental cost. And on the balance sheet cost being lower, that is because of high-cost debt getting matured.
My question was that, sir, as we have seen incremental cost of borrowings coming down, so there should be an improvement in the margins. But oppositely, we have seen there is a decline in the margins by 20 basis points on a QoQ basis. Is it because there has been a decline in yields? And what is the reason behind?
I think basically what happens is you have to compare Q1 with the Q1. What happens is the Q4, towards the end of March, there will be more disbursement on new vehicles. That is low yielding. That's one thing. Second, in our portfolio, with gold and personal loan portfolio, there was some decline was there. So overall product mix also changed a little. This contributed to a little lower yield on lending. This is typical of Q1.
Going forward, we can see there could be an improvement in the yields, which should support the improvement in the margins because cost of increment is almost stable, as you said.
Yeah. Margin is dependent on multiple factors. It also depends on liability cost and other factors. So overall, we can say that definitely there is some improvement. We can't quantify it.
Okay, sir. Sir, one thing in provisioning analysis we have shared is that there has been an improvement in gross Stage III on Q1, Q4, and all these things. But what we observed, ECL provisioning for Stage I has continuously increased 2.91-3.28 and now 3.42. So what is the reason behind that? Because we have seen the improvement in the asset quality. There should be a stability in the ECL provision as far as Stage II, there has been a decline in coverage ratio for Stage III, but there has been an increase in Stage I.
That is primarily because of the product mix that has been happening over a period of five years. There will be some dip or increase quarter-on-quarter, but nothing to do with the product-wise composition.
Okay. And sir, lastly, data point, if you can, sir, what was the write-off for this quarter as it is last quarter, same year write-offs?
One second. Write-off for the current quarter was INR 599 crores, and for the March quarter was INR 805 crores, and Q1/FY 2024 was INR 573 crores.
Okay. Okay. That was very helpful, sir. Thank you.
Provision amount also?
Provision amount?
You want it?
Yes, sir, please.
Okay. Provision for the current quarter was INR 588 crore. March was INR 456 crore, and June 23 was INR 305 crore.
Okay. Okay. That was very helpful, sir. Thank you and best of luck.
Thank you. Next question is from the line of Renish from ICICI Securities. Please go ahead.
Yeah. Hi, sir. And congrats on a good set of numbers. So sir, just two things from my side. One on the growth side. So during Q4 call, you have highlighted that Q1 should be muted because of the election and some sort of seasonality, but Q1 turned out to be better than expectation. And still, we are sort of maintaining the same guidance. So does that mean that, let's say, Q2, Q3 might see some pressure, or maybe we'll exceed the guidance?
See, definitely, when we start well, we should expect you can expect us to exceed the guidance. But there are multiple factors. See, AUM growth has the AUM growth and the bottom line growth. There are two different things. We are focusing on bottom line. Even last year also, I maintained we will be focusing on improving the product mix in such a way that there will be improvement in the bottom line. And also, we will be focusing on the new geographies where we feel that there is a lot of growth opportunities. And the smaller ticket loan will not add to the AUM. So if you are looking at the answer on AUM growth, we cannot give you the number right now because the small ticket loan, they mature faster, like gold loan, it's six months on average ticket size.
The personal loans will be an average of 18 months. Two-wheelers will be 21-22 months. So these are all small ticket loans which come into play—so that means you are on a treadmill, keep doing more businesses. So what will result in the AUM growth may not result in the bottom line. So we are focusing on bottom line so that bottom line grows much faster than the top line. So I should say that we will definitely exceed the guidance, but I can't quantify the thing.
Got it. Got it. And sir, the second question is on farm equipment. So when we look at the gross Stage III, touching 9%, and despite that, we saw there is almost 6%-10% sequential growth on the AUM side. So how, once you read these two different data points, I mean, growth in a segment wherein we have the highest gross Stage III?
See, one thing is in the tractor, the biggest advantage is most of the customers or the assets, they will remain within the village limit. It doesn't move out. So the credit cost in the tractor portfolio is as good as any other portfolio. It's around 2%, 3%. Even though the Stage III is a little higher and maybe provision is a little higher, but there is also a write-back because credit cost is not higher. And also, it is a high-yielding. The portfolio is high-yielding. So net-to-net, that portfolio is as good as any other portfolio. So we would like to grow there because it also gives a reach to us in the rural market.
Got it. Sir, would you like to share the asset yield for personal loan and gold loan?
We don't have it right now. You can contact Mr. Mundra. He'll help you out.
Okay. Okay. Okay. Thank you, sir, and best of luck, sir.
Thank you. Next question is from the line of Gaurav Kochar from Mirae Asset. Please proceed.
Yeah. Hi. Good evening to you. Congrats on the quarter. Two questions from my side. Firstly, I think it's less talked about, but I think you've done a fabulous job on the deposit franchise. I think even in this quarter, there was a decent traction. Net INR 3,000 crore kind of an accretion is commendable in the current context. So just wanted to understand some dynamics here. What is your sourcing mix? How much of it comes through branches? How much of it comes through the DSA? What is the overall sort of cost of acquisition? I'm not talking about deposit cost. I'm talking about cost of acquisition. You may be paying two agents, third-party agents who might be sourcing it for you. Just wanted to understand some numbers around this.
In the corporate channel, which we have, which is basically broker channel, that is around 35%. The rest of it comes from the branch and our own direct intermediaries. We have direct intermediaries, which is directly linked to the company right from the beginning. So overall cost should be 75 basis points.
Okay. This 75 basis point is spread over the tenure of the deposit, correct?
Yeah, correct.
All right. What would be the weighted average cost and weighted average duration of these deposits?
Average tenure of the deposit will be around 14 months.
Sure. And cost? In case cost?
8.3, 8.4, which is the cost.
All right. All right. Understood. My second question is on the MSME product, and I just wanted to understand how many branches have we covered doing this product? And let's say by end of FY 2025 or FY 226, any sort of target that you have of the number of branches that would be doing MSME?
See, even earlier in the Shriram City Union Finance branches also, out of close to 1,000 branches, we were doing MSME only in about 550-600 branches. Okay. So in these two years, we would have added about 50 of those, 50-55 of those Shriram City Union Finance branches, and in about 120 of the commercial vehicle branches. So close to about 170 branches is what we have added now.
Okay. Okay. So that 550 would have become 720 out of the 3,000 branches. So let's say by next year or maybe slightly long FY 2026, what would be the target? Any sort of goal?
Next two years, probably we will be adding another 250 branches.
In the next two years?
Yeah.
Okay. Understood. Understood. And just to understand this a little more, what would be the ballpark throughput of these branches in terms of just to understand when do these branches break even and where do these branches typically cap in terms of disbursement per month or disbursement per annum? Any numbers that you might?
Sorry? There's no clarity, Gaurav.
Sorry.
Yeah. My answer is not very clear.
So just this one. Is it better now?
Yeah.
Yeah. So I was asking, sir, in terms of disbursement per month or disbursement per annum, at what level does it break even, the MSME branches? And when do you expect to reach that level for the branches that you added, 170 you added?
The branches are not standalone MSME branches.
Right.
These are branches which are already in existence, which are doing other products where we add a couple of people for doing MSME business.
Right. But at a product level, ROA, when you calculate for these branches, ballpark, is it like 18 months, 24 months by when these branches break even? Apportioning the cost of the branch according to the mix of the AUM mix of that branch?
See, typically, obviously, if you look at MSME, if you look at the cost structure, it's the two-wheeler which will cost us, give us the most I mean, which will be the most expensive product versus SME, which is actually because of the ticket sizes. Two-wheeler is a INR 75,000 ticket size.
Right.
Whereas your MSME average ticket size is about INR 10 lakh.
Right.
The break even, I mean, we don't do right now, we don't track product-level profitability, but at a branch level, we look at what AUM level or what level the branch breaks even or makes a profit.
Sure. Sure. Got it. And this last question, again, regarding I think earlier was asked about rating. If I look at the overall balance sheet, I mean, on the asset side, it's largely secured and well-diversified. On the liability side, probably you have one of the most diversified liability profiles. On the asset quality front, you have the strongest ECL cover, even at an aggregate 6.2 or even at Stage I of 3.3. Capital position is strong at 20%. Now, what is left to be done for a rating upgrade? Anything that the rating agencies are talking about? What has been the dialogue with the rating agencies?
See, whatever the rating agencies' expectation as they're right to put it, everything we have met, and macroeconomic situation also, it's reasonably stable.
Right.
I think they wanted to wait for one full financial year, which we completed in this year, March. But we expect anytime in this financial year that they'll come back to us if at all they are looking at any other data points. Right now, they are quite happy with whatever the progress we have made, including the progress made in the integration of merger. So I don't really see anything that is further pending or expected from us. But still, they would like to have their own, what you call, they have their own committee and their own expectation, and they may be looking for better macro and micro environment for announcement.
And how big is having a parent or having a, let's say, corporate structure as a shareholder? How big is that as a factor? Does that come in the discussion often when you discuss this with the rating agencies?
Directly, no. Directly, they don't discuss on that.
Okay.
If you look at the pattern of their, what you call, rating, they have been giving the favor to the corporates, especially with the parentage having a good brand, a good name, a big large corporate. That is what we observe. It is not in the discussion.
Perfect. Perfect. Got it, sir. Great quarter again, and all the very best.
Thank you.
Thank you. Next question is from the line of Rajiv Mehta from YES Securities. Please go ahead.
Yeah. Hi. Good evening. Many congratulations on very strong set of numbers. I have a few questions. Firstly, are we seeing used vehicle prices, both used CVs and used PVs, somewhat flattening out?
Right now, we don't see. In fact, we have initiated something called Shriram Mobility Bulletin, where we are trying to track the prices, and that is available on the what you call website and in the media. So you can look at it. But still, what we feel is that used vehicle prices have been reasonably strong year-on-year. The growth looks to be around double digit, around 10%-12%. And we don't really see it is flattening. So as long as it is more than the inflation, that means the prices are increasing. That's how we look at it. But yes, it is not as strong as the previous year where we saw 20%-25% increase in the retail prices.
Correct. And this momentum in used passenger vehicle financing, which has been very strong over the past many quarters, I mean, which segments, which products are driving this momentum? Anything from a strategy perspective which has changed in terms of distribution tie-ups? So what is driving this strong growth?
Basically, see, what has happened is if you look at the pattern, the state undertaking investment in the public transportation has come down over the last five to six years. That is creating a gap in the semi-urban and rural transportation, especially in the semi-urban to urban where state undertaking used to put a lot of new buses every year. That's missing. Therefore, there is a lot of scope for private transportation using it for public. That's one. Second, also, the ownership of vehicle is increasing among the semi-urban and middle-income group people. They also would like to own their own vehicle. That is second. Third one is we are the largest player in the two-wheeler financing. Many of them are upgrading to four-wheeler. When they upgrade to four-wheeler, typically they buy second-hand four-wheeler.
So these are all factors that are helping us to increase. We expect this will continue to remain because this is a systematic change where public sector or the government not investing on the public transportation. And that is definitely there will be gap and vacuum. And definitely, there will be more demand for transportation, both for public use and also for private purpose.
Just one last thing. While the model LGD is 38%, but in your recent settlements with NPL cases, is the principal recovery or is the LGD loss lesser than what is the ECL model at right now?
So typically, in the seized vehicle, okay, the ECL, it will be slightly higher than the ECL because what happens is that once the vehicle gets seized, there is also a possibility that the borrower can replace these tires and batteries. So it will be difficult to compare ECL number with the seized vehicle.
Okay. Yeah. That's it from my side. Thank you.
Thank you. Next question is from the line of Kunal Shah from Citigroup. Please go ahead.
Yeah. With respect to maybe on the curiosity in terms of the.
Sorry to interrupt, Mr. Shah. Your voice is breaking.
Yeah. So maybe just out of curiosity, just want to understand in terms of the improvement which has been there in Stage III, Stage II, what we are hearing from the other players is the higher stress, maybe because of heat wave election disruption, while our trend has been quite different. Would you attribute it more towards lower slippages, maybe because the utilization of fleet was better, cash flows of the operators have improved, or would it be more towards the recovery efforts which is leading to this kind of an improvement?
See, I can say all three have helped. And more than everything, Kunal, recovery efforts and also less disruptions in the election. This time, election has been for the two months without really impacting any one of the geographies at any particular point of time. Even when there are state-level elections, it has been staged in two or three different days. So we did not see any kind of business as usual. It never got impacted. And the recovery efforts have been improving over the period. And last 30 months, if you see, there has been continuous improvement in our asset quality. And final point, you can always see that whenever the asset price goes up, people don't want to give up the asset. So the report has come down to all players.
You take into account of all the banks or all the NBFCs, you will see that the recovery efforts are much lower or no recovery at all. So that in itself is the indication that people are wanting to retain the assets, and they would like to pay. So the repayment has been quite good. And to give credit to our team, team has also been working hard in spite of heat waves, which did not really impact us much because most of the collection efforts are completed in the first 15 days. So 1 or 2 days of heat waves doesn't really impact the collection efforts.
Okay. Okay. And secondly, in terms of particularly on the vehicle side as well as the MSME, what proportion of customers would be utilizing the other lending facility from our end? And would that proportion have gone up? Are we seeing more synergies coming through customers coming and taking further loans?
It has been improving, but absolute numbers we may not have right now. But it has been improving because we are able to give the total what you call product basket to the customers. So we are able to interact customers are able to retain the customers who otherwise would have gone for, imagine, two-wheeler customers going for some other product or maybe same-time truck customers wanting a two-wheeler. All those customers we are able to retain. So that is the biggest positive. But in the absolute number and all, probably we'll be able to give the numbers in the later period.
Okay. Okay. Yeah. Thanks. Thanks and all the best. Yeah.
Thank you. We will take our last question from the line of Sonal from Asian Markets Securities. Please go ahead.
Yeah. Hi. Am I audible?
Yes. You are.
Yeah. Congrats on a good quarter, sir. I just have two or three questions. One is the clarification that I wanted. So you said that you will be adding about 250 branches in MSME over the next two years. So that is basically reaching about 30% of total branches will be in MSME. Is that correct?
Can you repeat your question, please? Your voice was usually garbled. You said you will be adding 250 branches in MSME. Next two years, yeah, about no. This is about 125 + 50, about 175 branches.
175 branches will be added next two years .
Sorry to interrupt, Ms. Sonal. Your voice is breaking now.
One second. Is it better now?
Yes. Please do.
We will be adding the product in about 135 existing branches. They are not greenfield branches. These are branches which are already there for quite some time, and they're selling other products.
Yes, sir. I understand. Also, basically, we will be reaching about 900 branches in two years' time. Is that correct?
Yeah. That's right.
Okay.
That's right.
Similar number in gold loans, if you could give how many branches are we doing at the moment? And what would be the branch count, say, at the end of two years, next two years?
Gold loan, we already have in about close to 600 plus 1500 branches. So we should be adding another 500 branches in the next two years.
Okay. Sir, one more question about the ECL provisions. So we are carrying this 6.2%-6.3% kind of a number. So are we carrying any macro provisions or overlay provisions in this number, 6.2%?
Yeah. It includes everything.
Would you be able to quantify that number?
No. See, the model runs in such a way that everything is factored, and we don't have any bifurcation of the same. It's factored.
Okay. Any guidance? I mean, do you want to maintain it at 6% or there is a scope to take it down further? I mean, to take it down, not further, but to take it down?
No, no. It is primarily based on the model that we run, and it depends on the product mix also. So it can vary by a couple of basis points.
Okay. Okay. That's it from me. Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Umesh Revankar for the closing comments.
Thank you all for joining the call. The first quarter was really good for us. We expect with the good monsoon being there, the second quarter and second half would be much better. Once again, thank you. Meet you again.
Thank you. On behalf of Shriram Finance Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.