Ladies and gentlemen, good day, and welcome to Shriram Finance Limited Q2 FY 2024 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. 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. A warm welcome to you. Greetings to, and good morning to those who have joined the call from western part of the world. I have with me today our Managing Director and CEO, Mr. Chakravarti, Joint Managing Director and CFO, Parag Sharma, Joint Managing Directors, Mr. Sunder, Sridharan, Sudarshan, Nilesh, Mr. Jilani, and Srinivas. Also, are present with me Ravi Subramanian, Managing Director and CEO of Shriram Housing Finance Limited, and Mr. Agarwal and Sanjay Mundra, our Investor Relations Head. It has been increasing quarter and first half of the year for Shriram Finance. We are seeing early dividend in our operations of recent merger on the back of inclusion of more products across our network. Let me first go to the Indian economy.
Indian economy expanded by robust 7.8% in the quarter ended June 2023. The outlook for FY 2024 is a growth of 6.5%. This is based on statistics indicating the strong pickup in consumer demand, good rural demand, as well as steady capital expenditure by the government on infra, which in turn is seeing private sector following the suit. Manufacturing activity, too, is seeing a strong growth, and IIP for the month of August registering 14 months high of 10.3%. Purchasing PMI index for August coming to 58.6. The economy is therefore seen to be holding up well. Economic activity appears to be gaining momentum despite global geopolitical uncertainty. Consumer demand appears to be improving further and should be even stronger during the upcoming festival season.
The Indian retail inflation in June increased to 7.4%, which was a 15-month high. Now, in the month of September, it is already corrected to 5.02%. At the same time, wholesale inflation was negative in July at 1.4%, which is further, it is now contracted to 0.26% in this quarter, this month, which is six months in a row, which has reduced. RBI, in its MPC meeting earlier in this month, retained the repo rate at 6.5%, but guided for higher inflation for FY 2024 at 5.4% versus earlier indication of 5.1%.
We are witnessing some increase in vegetable price, and that could lead to some increase in inflation in this quarter or maybe next quarter. However, we think the economy will continue to grow based on the strong rural economy. The monsoon this year was erratic. There were excess rain in July and September. There was also deficit in June and August. However, long period average is it is a near normal monsoon. The revival of monsoon in September has raised the prospect of helping major Kharif crop, and the total area under cultivation was 1,107.16 lakh hectares, which is 2.0 lakh hectares more than the last year. Oilseeds in particular have benefited from September's rainfall.
The Cabinet Committee on Economic Affairs has increased MSP, that is minimum support price, for Rabi crop for the year 2024-25 recently, which includes wheat, pulses, and oilseeds. So the rural economy is likely to do much better in the coming quarters. The GST collection continued to be robust for the Q2 2024. The GST revenue crossed INR 160,000 crore in July, third highest since GST was introduced, and 11% higher year-on-year. In August, GST collection was INR 159,000 crore, and September, INR 163,000 crore, which is fourth highest and 10% year-on-year. Coming to the auto industry, the commercial vehicle sales have been quite robust.
In this quarter, the total sales aggregated 2,07,929 units, which was higher than the previous quarter, the previous year quarter, which was 2,31,991 units, representing the increase of 6.9% year-on-year. Within CV, M&HCV grew fastest at 17.6% year-on-year, sales numbering 93,996 against 79,761 units. LCV sales was 1,54,133 units versus 1,52,230 units, a marginal increase. Passenger vehicle increased by 4.7% with 10,74,189 units against 10,26,309 units. Within the passenger vehicle, the utility vehicles grew fastest at 23.5%, indicating utility and the SUV vehicle demand being the higher.
This model vehicles grew, or I should say, declined to some extent. Two-wheeler sales were flat at 45,98,442 units, against 46,73,931 units. Two-wheeler sales is gradually picking up. What's encouraging is sale of electric two-wheeler, which was 63,715 units in September, compared to low of 45,806 in June, post the reduction of subsidy. Three-wheeler sales grew very strongly, with 1,95,200 units being sold, with a growth of 60.2% increase over the previous year. Tractor is continued to grow at 9.4% over the previous year, with 2,19,106 units sold against 2,00,316 units in the Q2 of previous year.
Construction equipment, again, registering very good growth of 29.26%, of, with the 27,444 units against 21,231 units, same period last year. One significant event in this quarter is, launch of our super app, which we have been, talking about for last one year. The super app, named Shriram One, is now, available in both Google Play Store and iOS App Store. We have, started onboarding. Initially, we started with the, the, our, employees, using it. Then we have started onboarding our existing customers, and slowly it will be introduced to large number of our customers, which gives them a solution, including the loan repayment, investment, insurance, credit scores, and many other, utility functions, which will make, them even to do, social networking, shopping, and utility payments.
Now, I request Mr. Y. S. Chakravarti to take forward the opening remarks.
Good evening, ladies and gentlemen. Thank you, Umesh. I welcome all of you to our Q2 FY 2024 earnings call. We declared our results for the quarter earlier today, and I trust you have had the opportunity to peruse them, review them, and the related investor presentation, which has been posted on the website of the stock exchanges. As our Executive Vice Chairman said, despite Q2 traditionally being a quiet quarter, we have this quarter has been encouraging for us. We registered a disbursement growth of 30.91% year-on-year and of 13.63% quarter-on-quarter.
Our disbursements in quarter two of this year aggregated to INR 34,605.61 crore, versus INR 26,434.31 crore in Q2 FY 2023, and versus INR 30,454.80 crore in Q1 FY 2024. Our assets under management, as on 30th September 2023, registered a growth of 19.65% over Q2 FY 2023 and of 4.88% sequentially. Our AUM stood at INR 202,640.96 crore, as against INR 169,359.08 crore a year ago, and INR 193,214.67 crore a quarter ago.
Our net interest income in quarter two FY 2024 registered a growth of 17.38% year-on-year and 8.55% quarter-on-quarter. We earned a net interest income of INR 4,818.18 crore in Q2 this year, as compared to INR 4,104.86 crore in Q2 FY 2023, and INR 4,438.68 crore in Q1 FY 2024. Our net interest margin was 8.93%, as against 8.26% in Q2 FY 2023, and 8.33% in Q1 FY 2024. Our profit after tax grew by 12.59% in quarter two FY 2024 over quarter two last year, and by 4.5% over quarter one FY 2024.
We registered PAT of INR 1,750.84 crore for Q2 FY 2024, as compared to 1,555.11 crore in Q2 FY 2023, and INR 1,675.44 crore in Q1 FY 2024. Our earnings per share for the quarter stood at INR 46.67, as against INR 41.53 in Q2 FY 2023, and INR 44.73 in Q1 FY 2024. On our asset quality, the gross Stage Three in Q2 FY 2024 stood at 5.79% and net Stage Three at 2.8%.
These numbers show an improvement over the corresponding numbers of 6.31% gross and 3.32% net in Q2 FY 2023, and over 6.03% gross and 2.96% net sequentially. Our credit cost for the Q2 FY 2024 stood at 2.02%, as against 1.73% for Q2 FY 2023, and 1.62% for Q1 FY 2024. Our cost to income ratio was 25.68% in the Q2 this year, as against 24.2% recorded in Q2 FY 2023. Our cost to income ratio in Q1 FY 2024 was 27.34%.
Regarding our subsidiary, Shriram Housing Finance Limited, Shriram Housing Finance Limited registered a disbursement growth of 60.93% to INR 1,688.30 crore, as against INR 1,049.10 crore in Q2 FY 2023. Shriram Housing's assets under management as on thirtieth September exhibited a growth of 65.23% year-on-year and 13.38% sequentially. Thus, the AUM stood at INR 10,816.03 crore at the end of Q2 FY 2024, as against INR 6,545.92 crore in Q2 FY 2023, and INR 9,539.20 crore in Q1 FY 2024.
Shriram Housing's net interest income registered a growth of 51.98% in Q2 FY 2024 over Q2 FY 2023, and a 14.27% over Q1 FY 2024. Net interest income for the quarter two FY 2024 was INR 97.43 crore, as compared to INR 64.11 crore a year ago, and INR 85.27 crore a quarter ago. Shriram Housing Finance registered a profit after tax growth of 41.7% in Q2 FY 2024 over Q2 FY 2023, and of 5.65% over Q1 FY 2024. PAT for the second quarter of this year was INR 48.21 crore, as compared to INR 34.03 crore for Q2 FY 2023, and INR 45.64 crore for Q1 FY 2024.
The EPS stood at INR 1.48, against INR 1.05 in Q2 FY 2023, and against INR 1.40 in Q1 FY 2024. Shriram Housing's gross Stage Three for the Q2 FY 2024 stood at 1.08%, and their net Stage Three came in at 0.83%. Comparatively, these numbers were 1.52% on gross basis and 1.15% on net basis in Q2 FY 2023, and at 1% gross and 0.75% net in Q1 FY 2024. I shall now request our full-time 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 our accounting aspects.
Hello, everyone. On the liabilities, total debt stands at INR 165,547 crores, which is an increase of INR 3,500 crores from the previous quarter. The breakup of the debt is 25% coming from retail FD, which is close to around 40,800 crores. The capital market, domestic capital market is 21%, which is INR 35,000 crores. The ECB is both in loan and bond format, is around 13% of our liability, which is INR 21,500 crores. Securitization, which is for, largely for private sector assets, is 15% of our liabilities, and quantum-wise, INR 25,000 crores. Term loan from bank institution is 26% of the liabilities, at INR 43,170 crores.
The cost of debt has marginally come down from 8.89 to 8.87, for the, as of the period ended September 2023. The incremental cost of fund is around, 8.7%. The liquidity as of September was INR 15,600 crore, which is more than the liability for next, three months, which is close to around INR 13,000 crore, which is close to around, three and a half months of liability repayment.
The LCR ratio stands at 219.57%, against the regulatory requirement of 85% to be achieved by December 2023. The overall borrowing for the quarter has been around INR 21,000 crore, which was INR 18,000 crore in the previous quarter. The debt to equity stands at 3.59% versus 3.6% for the previous quarter. The ALM surplus, all buckets have been positive as in past, and surplus up to one year is in excess of INR 28,000 crore versus close to around INR 27,000 crore in the previous quarter. We have been raising ECBs, and in the calendar year till now, we have done close to around $980 million of ECB borrowing, largely in the green format.
Recently, we have concluded $400 million of ECB loans. With this, I hand over to Sunder for his remarks.
The employee count as on 30 September was 71,373, against 66,343 in June quarter. We have increased our employee count by 5,003. The cost to income ratio as on, for the quarter September was 25.68, as against 27.34 in the previous quarter. Coming to the ECL numbers, in stage one, the PD was 7.89% as against 8.05% in the previous quarter. Stage two PD was 18.21% as against 18.88% in the previous quarter. The LGD was 41.39% in the September quarter, as against 42.32% in the June quarter. The board also approved the declaration of dividend of INR 20 per share.
That is 2,200%, dividend was declared in the meeting earlier today. With this, we hand it over to the forum, open for any questions.
Thank you very much. We now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is from the line of Mahrukh Adajania from Nuvama Wealth. Please go ahead.
Yeah, hello. Congratulations. So if you could talk us through a bit through your margins, do you see this level sustaining? I know you called out the marginal cost of funds, but do you see this level sustaining? And the share of CVs has come down, so any explanation?
See, the net interest margins have improved. One is the liquidity which we are maintaining at four to five months, now it is got down to three months. That is, that is negative carry is reduced. That's one of the reason. Also, the certain products which gives higher yield, we have been able to increase it. That also has given. So the product mix and reduction of the negative carry, that is the reason for the expansion of the NIM. It should continue depending upon the product mix, what we lend. That is one. And on CV, we have grown 12%. In fact, if you recall, we have been telling that CV will continue to grow between 12%-15%, and the other products will grow faster.
That's the strategy we have adopted, and we are going as per the strategy. So, CV will continue to grow and continue to be remain, mainstay, but the other product will continue to grow faster. But here, if you observe, the passenger vehicle have grown faster. So it is.
Mm.
Between the passenger and CV, the passenger has taken little faster growth, because of the bigger demand coming from tier two and three towns for passenger vehicles. So overall, I feel, the growth of all segment will continue to remain strong.
The share of new CVs?
New CVs, we are taking a position on new CV. It is continued to remain reasonably strong. In fact, we started growing on new CV in the quarter of last quarter, then continued in the first quarter, and now also it continued to grow. But it will not be a significant number on the overall scheme.
Okay, but the share would have reduced this quarter?
It would have marginally reduced because other products have grown faster. That's all. Otherwise, it is continuing to grow at same level.
Okay, sir.
Okay.
Thank you.
Thank you. Next question is from the line of Avinash Singh from Emkay Global. Please go ahead.
Yeah, hi, thanks for the opportunity. A couple of questions. First one, I mean, if you can sort of, again, on, on yield side. So yield seems to have improved a bit. I mean, so of course there is some shift in product mix. So what sort of a product mix change is the sort of a new, old comp, composition or the other segment, like your PL or, you know, gold loan that is, have driven up the yield? So if you can just, help us understand what has led to this sort of, you know, improvement in asset yields. That's one.
And second, you know, in the credit cost of close to INR 1,100 crore numbers, if you can help us understand, what sort of write-off is included there? Thanks. Two questions.
So on the product. Hi, this is Chakravarti here. If you look at the growth, for the six months compared to last year, the outliers, I mean, in the sense, the highest growth has come from passenger vehicles, MSME, gold, and of course, a personal loan also, which are basically slightly higher-yielding products compared to the commercial vehicle. Out of the total disbursement of commercial vehicles, probably about ten, twelve percent would be new vehicles, and rest of it is old vehicles. So, the yields there, I would say the overall yield growth has come because of the MSME, increase in MSME, gold and the personal loan products.
As far as the rate cost is concerned, yeah, the write-off during the quarter was INR 809 crore, and the provision was INR 289 crore, totaling to INR 1,128 crore.
No, what is the current?
Yes. You said, INR 289 crore is a provision, INR 800,000 crore-
INR 889 crore of write-off and INR 289 crore of provision.
Okay. Okay. And that yield improvement, I was talking more from a quarterly sequential, so I mean, from Q1 to Q2 has also improved, where I mean, if I see CV has gone down, PV has gone up a bit. I mean, yeah, and personal and others have largely remained stable. So, yeah.
The numbers I gave you were over the last two quarters.
Okay. Okay, thanks.
Thank you. Next question is from the line of Shreepal Doshi from Equirus Securities. Please go ahead.
Hi, sir. Good evening, and congrats on a good set of numbers. So my question was pertaining to yields again. Could you please highlight any, the rate hikes that we would have taken in the last three to six months for, for CV and PV segment?
No, we have not taken any rate hike there. We have, we have held our rate. It's just a change of mix of products that I think helped us in the yield side.
Okay. So, sir, what is our pricing in the new CV and used CV and PV segment currently?
It ranges, the new CV ranges anywhere from 11%-13%.
Uh-huh.
Old CVs would be again 13%-15%, 16%.
And MSME?
MSME would be, again, same thing, 14%-20%.
Got it, got it. Sir,
Range, depending on, you know, the security, the customer profile. It's a range.
Right. Right. Sir, just on margin guidance front, so we were earlier anticipating that for the year-end, we would see 8.5% margin, but with this liquidity-related change in approach, like we brought down the liquidity on balance sheet as well as change in product mix. So where do we see the margin moving for the year-end?
We would like to continue with our guidance on 8.5, but yes, depending upon the market situation, it can vary little. So it should be anywhere between 8.5-9.
Okay. Okay. So just last question, during this quarter, we've added 5,000 employees. So is that onboarding of new employees only, or is there anything else?
It's onboarding of new employees only.
As in from the fresh employee pool from.
Mostly, majority of them, 90, 95, 97% of them are feet on street.
Okay, okay. For sales role. Okay, got it. Thank you, sir. Thank you so much, and good luck for the next quarter.
Thank you. Next question is from the line of Gaurav Kochar from Mirae Asset. Please go ahead.
Yeah, hi, good evening, sir. Congratulations on the quarter. Sir, three questions from my side. Firstly, on again, margins. Here, I think, the level of liquidity today is around INR 10,000 crore, which is 6.5% of your borrowings. So going forward, do you expect, do we expect similar kind of liquidity now, you know, that will maintain probably six, 6.5% of borrowings, which is essentially the three-month liquidity cover?
Yeah, that's a policy of the company, and we will.
Maintain that.
It will maintain that maintain it.
Got it. Got it. And just on this, the LCR ratio, I think you reported 219. Last quarter, it was 202. So despite the liquidity coming down, the LCR has remained or in fact improved. Is it largely because of lower outflows in the next 30 days, the way it is calculated?
Yes, correct.
Okay, so for a normalized outflow, let's say maybe next 30 days, outflow may not be may not be significant. But for a normalized outflow, what could be the like-to-like liquidity coverage ratio?
It will be around 1%-3% what we will maintain.
Okay, okay, sure. Then there'll be, it will still be much above the required levels. Sure.
Correct.
Coming to the cost of funds, sorry, I couldn't catch the stock cost of fund. I caught the incremental cost of fund, which was 8.7. What is our stock cost of fund today?
8.87.
8.87%. Okay. So going forward, I mean, the margin trajectory as we speak, 8.9% is what you did in this quarter. And if the incremental cost of fund is lower than your stock cost of fund, what should break down the margin from here? Are you seeing some bit of moderation on yields?
Well, I think, as of now, there has been some increase. The incremental funds, what we have now seen coming in next few months, should be between, should be around, 8.75%-9%. So I don't expect the cost to come down. It should continue to be at around, this level only, between 8.8%-9% is what I foresee.
Okay. No, the reason I'm asking is, what's the reason for holding on to the guidance of 8.5%, given that we've already delivered 8.9%? Is it, like, more conservative? Because from the data, I don't see that margins falling from here.
No, it is basically. See, in the last quarter, we will definitely more demand will be there for new vehicle. Then, definitely there will be some shift in the mix. So therefore, we are giving a conservative guidance.
Okay. Sure. Sir, on credit cost, second question. On credit cost, if I look at the stage one ECL cover, that has gone up 20 basis points from 2.9 to 3.1, and that has led to increase in credit cost of around INR 260 crore. I just calculated, you know. Any reason to increase the PCR on standard assets? I think most of the NBFCs work at 70, 80 basis points on standard assets. Why are we keeping 3%, 3.1% kind of cover on our standard assets?
Based on the historical data, also we keep stressing our doing a stress test on the portfolio, and this is that. The stress test when we do, it's also linked to the inflation and CPI of the country. This is that there is a movement in the requirement of the PD, LGD and PD.
Okay, because 3% is significantly higher than what we used to keep earlier, and it's higher than all other NBFCs. So, okay, sure. So you would like to keep this at 3% kind of a level, increase?
Around this level, yes. That's what we expect.
Okay. Okay, because if I look at the improvement in stage two and stage three assets, that's also an outcome of strong macros again, here. You know, that is kind of counterintuitive, because if you're increasing-
No, that will. Yeah, you're right. But, the improvement in the quality of the assets will get reflected in the subsequent periods only.
Sure.
Because we are taking the last five years' data, so this data will get added, and then when we are again rerunning for the next year, then this impact may be better.
Okay. My final question, sir, is on loan growth on the AUM growth. Today in this quarter, we have delivered 20% growth. YTD growth is around 9%. And, sir, you, I mean, Umesh sir had always said and always maintained that 2H is better than 1H in terms of disbursement, broadly 60/40. In that context, I mean, your growth guidance of 17%-18%, I mean, can we not do 20 or more in this year, given that we've already done 20?
We always would like to grow faster, but see, economic condition and the GDP growth both will determine the credit demand. So we don't want to push beyond what the economy needs. So we are always giving a conservative number, but if there is a scope to grow, we will grow more than 20 also. So we are not hesitating, but the economy has to, you know, take that kind of a growth. So we are quite, I should say, very conservatively giving you the estimation.
Perfect. Perfect, sir. Congratulations again to the team for the quarter and all the very best.
Thank you. Next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yeah, good evening, everyone, and congratulations on a good quarter. Sir, first, please, first, if you could just help me with two data-keeping questions, if you could just give. Am I audible?
Yeah, yeah, yeah.
That's right. So first, if you could just give the disbursement mix, and if Sunder Sir can just give the LGD number that he gave out in his opening remarks.
Yeah. The PD for Stage 1 is 7.89% in the current quarter, as against 8.05% in the previous quarter, and the PD for Stage 2 is 18.21% in the current quarter, as against 18.88% in the previous quarter. LGD for the current quarter was 41.39%, as against 42.32% in the previous quarter.
Okay, and the disbursement mix?
Disbursement.
What, what is it now?
Disbursement.
Disbursement mix, if you,
Okay. So we have disbursed totally INR 34,605 crores in the current quarter. The CV was 1,782 crores, passenger vehicles 7,379, construction equipment was 1,978, farm equipment was 550 crores, MSME was 3,593, two-wheeler contributed to 2,359, gold 3,051, and personal loans 2,910.
Got it. So this is useful. Sir, a lot of discussion has already happened on margins. You already suggested that this kind of margins look sustainable. So just two questions here. One is, would you be able to kind of split this margin expansion of 60 basis points that we've seen sequentially, into what came because there is now lower liquidity on the balance sheet and lower negative carry, and what has been driven by increase in the proportion of higher yielding products in the mix?
Okay, this we will take it offline. You can contact Mr. Mundra, he will help you out, maybe tomorrow.
Sure, sure. And sir, any one-off from the merger accounting in the NII that you reported?
No, no. Nothing. All of the one-offs are over. There is nothing in the current quarter.
Got it. And sir, lastly, on credit costs, I mean, write-offs, I mean, appear slightly higher in this quarter. Anything to read into from an asset quality perspective, any disruption that you saw from this erratic monsoons that we had?
Nothing. The June quarter, the number of settlements were lower, and the current quarter, the settlements were higher. It was close to 15 lakh contracts we closed, and with an average write-off of around INR 5,500. This has been the trend in the previous quarters also. We have been, per ticket write-off will be around INR 5,000-INR 6,000, is the broad range that we have been observing in the last many years.
Got it, sir. Just one last question. I mean, Umesh Sir said that we kind of remain conservative in guiding for margins as well as AUM growth. Currently, what's our guidance on AUM growth?
See, our, the year beginning guidance of 15% will broadly hold good, but since we have already grown at around 18% year-on, 18%-20% year-on-year, the second half also should be able to... We should be able to grow at similar level. See, it also depends upon last year's growth. So year-on-year, when we compare the previous year comparable, we need to see. So I think 18%-20% is something a good indication for rest of the year.
Got it, sir. This is useful. Thank you so much. That's all from my side.
Thank you. Next question is on the line of Viral Shah from India Infoline. Please go ahead.
Yeah. Thank you, sir. Actually, I had a question in terms of the personal loan. So, of course, within the entire product suite that you have, the SME products, as you mentioned, they are driving the growth at an overall level. But within that, the share of personal loans is also increasing. So in that context, can you give us some more color on the kind of customers you are targeting, some clarity around what's the average ticket size like? And secondly, also, what's the progress in terms of your partnership with Paytm? And have you forged partnerships with any other fintech platforms? And like, what's the share of those loans?
Okay, as far as personal loan is concerned, today, it is 100% targeted at my existing customer who has finished at least one cycle of loan with me. Okay? So, if you look at the disbursement of the last quarter, which is INR 2,900 crore, out of which almost 30%-35% of the customers who are people who have already taken a two-wheeler loan and a personal loan, and now again, come for a second personal loan, which is basically they have closed two loans, they come for a third loan. They're repeat customers. I mean, the rest of it is to two-wheeler customers who have finished a cycle, that they have finished their loan and they came for that.
So average ticket size, and this is, for the first time, in the sense that a two-wheeler customer who is coming for a personal loan for the first time would be around INR 45,000-INR 50,000. A customer who has serviced two, three cycles would be around INR 65,000, INR 65,000-INR 70,000. So that is the average ticket sizes. On the yield side, it ranges again, depending on the customer's profile also, ranges from 20%-26%.
Thank you.
See, as far as Paytm is concerned, we are, the tech integration is in the process. We should be able to complete the tech integration in the next two weeks and then start business one. Second is, we have on the tie-up with fintechs, we do have a couple of tie-ups with the fintechs, where we tied up with one fintech for giving credit to new, I mean, extending credit to new-to-credit customers and a couple of fintechs for supply chain funding.
Okay. Got it, sir. Can you give, basically, what's the target you have in terms of scaling up these partnerships with these fintechs, whether be it Paytm or the other fintech that you mentioned?
So as of now, we have not put a target on this. We wanted to see how the business performs for at least two-three quarters, and then we will take a call on the numbers. See, Viral, here, as our customer base increases, the scope for us to give personal loan also increases. So that is how the opportunity will keep coming up.
Got it. And sir, one last question from my end over here. So while I can see the gross stage three numbers for personal loans, which is around, has been around 5-5.5%, what's the kind of write-off policy over here, and what is the write-off levels that you are seeing currently?
Policy is 100% write-off on.
See, it's based on the ECL model only, so it depends upon the product. So there is no set thing, it goes based on the historical data.
Right. So what's the policy for personal loans for write-offs, and what's the level of write-off that we see?
See, yeah, beyond 12 months, supposing if it's more than 365 days, then we fully write off those assets.
Okay, got it. Got it, sir. Thank you. That's it from my end.
Thank you. Next question is from the line of Shweta Daptardar from Elara Capital. Please go ahead.
Thank you, sir, for the opportunity, and congratulations on good sales. Sir, just taking cue from the previous question, did I get it right, unique customers to Shriram ticket size and personal loans is INR 45,000-INR 50,000?
Correct.
Okay. So then just, you know, on this, if you could dwell more because there have been concerns in ticket size below INR 50,000. I do understand you just mentioned that, you know, most of the customers are two-wheeler, but especially this first-time customers, how is your experience on ground in terms of quality?
Let me correct you again. They are not first-time customers. They have already serviced a 60-70,000 rupees worth of two-wheeler loan. So they are not first-time customers. So our experience with dealing them is fine. I think the concern mostly in the market is on the smaller ticket is on the BNPL loans, right? And point number two is just to let you know, about 85% of my personal loan customers are either self-employed or small businessmen, right? So most of this money goes towards some small working capital needs. These are basically could be your milk vendor, could be your plumber, electrician, your vegetable fruit seller, these kind of small businessmen.
Okay, understood. And then, what is the ticket size for the second cycle customers you mentioned?
That will be around 60-70 thousand.
Okay, okay. Sir, and my next question is again on new vehicle financing growth. So I remember somewhere last time you did mention that the new vehicle financing growth is also because used vehicle financing customers are getting upgraded. But then it's been more than three quarters now that we have been seeing new vehicle financing growth surpassing the used vehicle financing growth. And if we look at the market, so most of the NBFC and other players have been vying for used vehicle financing market share. So somewhere we are facing the competitive heat, or this is by demand?
Sorry, I didn't get your question. See, first of all, our used vehicle market share, we are not losing. We are actually gaining market share in used vehicle. So, new vehicle, yes, people upgrade. There are some used vehicle owners upgrade, and we do finance. And in the last quarter, in the previous year, normally in the last quarter, more people opt for new vehicle. That is every year, if you see in the last quarter, more people opt for new vehicle. So that's the only thing we highlighted in the previous quarter, that because of that, new vehicle mix increased. It is not that we are losing used vehicle market share and therefore we are doing new. It is not correct.
We are continuing to grow in our used vehicle, and some customers are upgrading to new vehicle.
Right, sir. Yeah, that, that exactly was my question. Sir, one last question, if I may squeeze in. Any additional provisions you have made again due to stress test this particular quarter, the way you did in Q1?
No, no additional provision.
Okay. Okay. Thank you, sir.
Thank you. Next question is from the line of Kunal Shah from Citig roup. Please go ahead.
Yeah, congratulations for good set of numbers. Firstly, again, with respect to write-off, if you can highlight in terms of the segments where in the write-offs would have been higher, is it more coming in from PL segment, or this seems to be more of the vehicle segment itself? So how should we look? And, if I heard it right, is this run rate something which is more kind of a normal run rate of INR 800 crore-INR 900 crore going forward, too?
See, we have been guiding a credit cost of between 1.5%-2%. We still expect to be in those levels for the full year. Coming to the segment-wise write-off, I would suggest that you contact Mr. Sanjay. He'll be able to help you tomorrow.
Yeah. No, just the sense of whether incremental, whatever was there, was it more of a PL? Yeah.
Hi, Kunal. Yes. Now, Kunal, I would like to tell you, see, there is a newspaper item saying that the personal loan having a low ticket personal loan having higher risk is something which is playing on your, all of your mind. I would like to clarify here, we are not in open market for selling our personal loan. We are offering a additional loan for existing customer who have already repaid our loan. That means a track record is established and we know the customer, so we are offering them a personal loan to these customer, if it all, they need any personal business needs. This is not for consumption, this is for business, because 80% of our two-wheeler customers are business people.
They need a business, loan for working capital or any other expansion, business expansion purpose, and therefore, this is given. So I would like to stress here that we are not in open market personal loan, just like any other player or any other, platforms. We are not there.
Also not GNPL.
Also we are not in GNPL market.
True, true. Okay. And, secondly, when we look at the provisioning difference now between, maybe the overall ECL, on Stage 1 and Stage 2, in fact, if you look at it like, Stage 2, ECL has actually come up from 7.85 to 7.18. Okay, so no doubt you highlighted in terms of, the LGD and PD assumptions, but what's actually driving that? Is it more of a quality, maybe, maybe, maybe the history which you, actually, rely on for, that calculation, that has undergone some change. But at the same point in time, Stage 1, we are seeing the increase of 15 basis points out there. Yeah.
It's more of a mix of the products as well as the ECL model that we run. So it is interdependent upon all these things and also the historical data. All these factors contribute to that.
See, Kunal, what happens is, if you go back to last five years, there has been a stressful period in the last five years. So some of those also will play when we go into ECL model. So if I drop the five years and go just for two years, then our this one will be totally different. So as Sunder said in the beginning, as we go forward in next year, definitely the our calculation will undergo a change. ECL model will go, calculation will undergo change, and the requirement, provision requirement will come down.
Okay, sure. And one last question on housing finance, a doubling of ECL on stage two from 3.5 to almost 7.3 in one single quarter. So again, it's more of a change in the assumption, maybe particularly with respect to the PD assumption out there?
Can you repeat, Kunal, again?
No, Stage 2 ECL provisioning in housing finance, that has almost doubled from, say, 3.5 odd% to 7.3% in one single quarter. If you look at slide 38, okay, of the presentation. So I don't know maybe what has led to this. Is it more of a change in PD assumption? And how should one look at the buildup of the stress out there in this portfolio, yeah?
Oh.
If you look at the last line, 3.5 to almost 7.3 in one single quarter.
Kunal, we have made change in the ECL assumption, so I will check this and get back to you.
Okay. Okay.
Sanjay will get back to you. Yeah.
Yeah, sure. Okay. Thank you. Yeah.
Thank you. Next question is from the line of Piran Engineer from CLSA India. Please go ahead.
Yeah, hi. Thanks for taking my question, and congrats on the quarter. Firstly, just wanted to understand that we've added 5,000 employees this quarter, but our employee OpEx is absolutely stable. So any one-offs either last quarter or this quarter?
So the previous quarter had the change in the gratuity assumption, and hence, the cost was higher in the previous quarter. This is more or less normalized one.
Okay. Sir, can you remind us how much that amount was?
I don't have it right now. Maybe you can contact Sanjay. He will help you out tomorrow.
Okay, okay, sure. Secondly, just getting back to personal loans, wanted to understand whether we've started, cross-selling it to Shriram Transport customers, or it's still within the SME customer ecosystem?
Shriram Transport customers, they see, typically, if they need a loan for, say, buying a tire or a battery or fuel, we already have those products. So pure play consumption personal loans, we have not yet started.
But we intend to, or that, those 25 lakh customers are out?
It depends on the. Say, we intend to, but it will depend on the customer's earning and repayment ability. We will not. It will not be a pre-approved loan that we are going to push.
Got it. Got it. And just, sir, lastly, on, on the same thing, because a lot of our PL customers are ex-two-wheeler customers, but when I notice our PL GNPLs are higher than two-wheeler. So what would explain that? Like a repeat customer having a higher delinquency than a, you know, a new customer.
It is just that, on a two-wheeler loan, the people feel that it's a secured loan. They have an asset that they have lose, they have to lose, they, they may lose. Whether here it takes a lot of persuasion once they start, you know, getting in delinquent, it takes a lot of persuasion to collect the money. Basically, two-wheeler loan is average 18-24 months. This personal loan will be around 12 months. So it, it.
Sorry, sir, you've gone.
Sorry. So basically, it's just that it's the nature of that. That's the reason why it's called personal loan. So it's not a secured loan, so people also tend to take it a little easy. So you, you need to work much, that much harder.
Got it. Got it. Okay. Okay, that answers my question. Thank you, and all the best.
Thank you. Next question is from the line of Rajiv Mehta from Yes Securities. Please go ahead.
Yeah, sir. Hi. I have a couple of questions then. Firstly, congratulations on very strong set of numbers. So, sir, first question is on very strong, consistent growth in used passenger vehicle portfolio. Now, can you reason the growth, or can you give more color with respect to what kind of vehicles in this portfolio, which models are growing faster? And secondly, what is the nature of demand? Is it more replacement in nature, or is it fleet addition? And thirdly, you can also call out the role of what is the value growth versus volume growth in this portfolio.
See, as of now, the ticket size is definitely a larger one, so that is definitely helping in the vehicle portfolio growth, especially in the passenger vehicle. Diesel prices have gone up by 30%-40%, so that is really helping in the growth. But otherwise, also, the reach has also increased for us. The number of branches to offer the passenger vehicle and the commercial vehicle has increased, but passenger vehicle is easy sell for most of the erstwhile SCUF branches, therefore, the passenger vehicle growth is faster.
Sir, again, even MSME growth has been growing, the growth has been pretty strong. I know that we've been gradually, you know, our strategy has been to take it to the erstwhile Shriram Transport branches for cross-sell. So can you call out what has been the additional growth because of cross-sell that we are starting to see? That's number one. And whether is there any role of ticket size increase in this, in this growth being reported?
So ticket sizes are absolutely not grown. That I. A nd we are also, we also monitor very closely the ticket sizes, because we are very conscious of what we do. One, second is, the growth is also because of, as you said, you're right, that, we have taken it to places where the commercial vehicle branches are also there. So the, I would say an addition, additional 10, 12% growth has come in the, the loans because of the introduction of these loans in the commercial vehicle branches.
Okay. Just last question is on asset quality. Again, we have seen consistent improvement in our portfolio construct. I mean, Stage 1 and Stage 2 percentage have improved, which also means that collection efficiencies are going up. So can we now, going into second half, which is generally pretty strong, can we assume that the fresh delinquency creation and the forward flows will be even better, and hence the credit cost would be well within the range?
Yeah, we anticipate that it will be stable, and definitely it should improve by a few more basis points.
Okay, thank you so much.
Thank you. Next question is from the line of Chandrasekhar Sridhar from Fidelity International. Please go ahead.
Good evening. If I were to look at your yields on advances over the last 12 months, you know, if I, you know, this time last year, you were carrying five months of liquidity, you are now down to three months of liquidity. And, you know, obviously the business's mix has shifted, with some of these personal loans picking up pretty substantially MSME. But it, it seems that, you know, adjusted for that, you know, there's been no, on the individual product basis, basically, you're not, you know, taking up yields in an environment where, you know, we've had a pretty substantial rate hike cycle in this entire period.
You know, are we on a individual product basis, are we finding it tougher now to take yields to where they were, you know, earlier, or what we used to do earlier?
See, it's not a question of finding it tough or not. We feel the our products are priced right. So we don't find a reason why we should increase those rates, push the rates up. And we also have to keep the market in mind, the other players of the market in mind, at what rates they are operating and what rates we operate. In fact, if you look at our two-wheeler offering of two-wheeler and MSME, we are actually at a slight premium compared to other players. Two-wheeler, which is a very competitive product, we are at least 100-150 basis points more than what our competitors charge. I think they are rightly priced. Unless we have a pressure on the NIM, we will not look at increasing the rates.
So, I mean, essentially, it means that there is competitive pressure. I mean, competition is basically making you keep yields where they are, like for like, you know, even in a rate hike.
No, I'm, I'm sorry, I didn't say that. What I'm trying to get at is, I think the yields that we are getting are very comfortable yields, and the NIMs are also comfortable. So I'm not in a, I think we are in a finance business where the rates are pretty good, I think, and the NIMs are pretty good. So we are not looking at pushing this further.
Okay, okay, understood. And you know, while you know, the unsecured business has grown 10% quarter-on-quarter, and you know, you did speak about a little earlier about thinking or contemplating what you would do with cross-sell on PL for even maybe Shriram customers. Just wanted to be sure that you're keeping this within the ambit of capping unsecured at 5% of overall AUM. Is that something or has that, you know, the guardrails which you put in internally, have they shifted to, you know, maybe a higher unsecured business?
No, we have not changed. That policy has not changed.
Right. So this 4.3 goes to 5 eventually, and then you want to cap it somewhere.
Yeah. At 4.3, by the time it reaches five, the overall five will become bigger. So, we hope that there will always be a gap.
Right. And can I just check on the OpEx? Obviously, you've added a lot of people in the last 8-12 months. Just some sense on how many more are you going to add or the cross-population across branches and, you know, for the gold loans, the number of people which you're adding. Is that largely now done and, you know, on cost to income, we get some leverage at some point in time, or this is what we should be thinking is, you know, the cost to income on a steady state basis?
The cost to income will be around 26%-27% that we have been getting, and we continue to be sticking to the same number. On the employee addition, we just.
We may add another 1,500-2,000 people in the next six months. Because we are also opening up the collection centers, we have about 800 service centers. Some we are planning to convert some of the service centers into full-fledged branches. Because also we are, we have not yet fully exploited the network for both MSME as well as gold loan products. So it could be an ongoing process, but I think it will be at least another three to four quarters before we look at, you know, capping manpower, pushing pushing for yeah.
So the operating leverage basically is still, you know, is somewhere middle of FY 2025, second half of FY 2025 to 2026, the cost income starts coming off.
Yeah. But I think, as Sunder said, we are actually looking at a 26% cost to income, so it should stay there.
Right. Okay, got it. Thank you.
Thank you.
Thank you. Next question is from the line of Puneet from Macquarie Group. Please go ahead. Puneet, may I request you to unmute your line and go ahead with your question, please? Due to no response, we move on to the next participant. Next question is from the line of Ankur Jain, individual investor. Please go ahead.
Yeah, hi, good evening. I have a question on the ROE. So for the last two quarters, the company has been reporting ROEs of 15%+. So my question is, is there any target of ROE that we have in mind? I mean, some range of ROE over three- to five-year period that we want to target?
16-18 is our target.
Okay. And, what would be the roadmap for that, if you could help?
Next year, we should be at 16, then it will improve to 18.
And does it include increasing the debt-to-equity ratio?
Yeah. As we grow, there will be increase in debt-to-equity ratio.
Okay. Yeah, thanks. That's it.
Thank you. Next follow-up question is from line of Puneet from Macquarie Group. Please go ahead.
Thank you for taking my question. Just, on the yield bit, what was the increase in yield and cost of funds, this quarter, if you could highlight that?
Cost of fund has not gone up.
Okay.
The yield, around 30-40 basis point increase in the yield and some decrease in the cost of funds. We also got an advantage of the negative carry being lower because of the lower inflation of securities.
Yeah. So, on that bit also, your incremental cost of fund was, you know, lower than your reported cost of funds. So did, you said that the product mix might, you know, drive a decline in margins. Would that be that opposite? Because the way we are calculating, it looks like margin trajectory should be upwards, even after the 3.9% you've reported. So any comments on that?
Right. No, I think, what Umesh mentioned was that in the third and fourth quarters, typically, the new vehicle sales goes up. So the new vehicle funding will go up, but that could... Basically, since the new vehicle, are, lower, yield products, he said, the NIMs could be, he says we, we stand by our guidance of 8.5%, NIMs.
Got it.
That is what. Yeah.
Okay. Okay, and, could you highlight what was the used vehicle and new vehicle growth this quarter? I'm sorry, I missed the opening comment.
That, I think Sanjay will give you. I have a CV. CV as a whole has grown by about 14%.
Okay. Tomorrow, you can just contact me, so Sanjay will help you.
Oh, yeah. Okay. Thank you.
Thank you. Ladies and gentlemen, we'll take that as our last question. I now hand the conference over to Mr. Umesh Revankar for closing comments.
Yeah, thank you. Thank you for participating in the call. We do expect the next second half of this year will be robust. Already the indication is that the festival demand combined with the cricket fever is creating reasonably good credit demand. And with the economy being strong and all other parameters remaining good, we should be able to grow faster in the second half of the year and come with a good set of results next quarter. See you again next quarter. Thank you very much.
Thank you very much. On behalf of Shriram Finance Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.