Q2 Review: Shriram Finance's Profit Rises 13%, Meets Estimates

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#Q2WithBQ | #ShriramFinance's stock up 9% post September quarter earnings. Executive Vice Chairman Umesh Revankar talks about the interim dividend announcement and growth outlook for the coming quarters. #BQLive

Transcript

00:00 Welcome to BQ Prime. I am Pragati Oberoi. Thanks so much for tuning in to this special broadcast.

00:05 Now, Sriram Finance reported its second quarter earnings on 25th October and the numbers look

00:10 pretty decent so far. The net profit was up about 13% year on year. The total income was up about

00:16 15.4% year on year. This morning, the stock also hit its 52-week high. Now, joining me for this

00:23 very special conversation is Mr. Umesh Rewangar, who is the Executive Vice Chairman of Sriram

00:28 Finance. Mr. Rewangar, thank you so much for joining us for this conversation and for decoding

00:33 the numbers with us going ahead. Yeah, my pleasure.

00:37 So, sir, banks and NBFCs this quarter are facing this problem of margins compression,

00:44 but yours have expanded about 60 basis points. I can see that on a quarterly basis.

00:49 What explains this expansion to us?

00:54 Yeah, there are multiple reasons. One is we have been carrying excess liquidity on the balance

01:00 sheet for last one year, more than a year, and because of uncertainties. Now, since we have

01:08 reduced the liquidity, additional liquidity, the negative carry is gone. That's one thing.

01:14 From average four to five months, we have now brought it down to three months average

01:21 liquidity in the balance sheet. Second is better product mix. We have changed the product mix and

01:28 high yielding products we have launched across the network, and that also has helped. And in fact,

01:35 this is the benefit of the merger. We did and went through a merger of Sriram Transport Finance and

01:44 Sriram City Union Finance last year. Now, multiple products being available in all the branches,

01:50 and we are able to have a better product mix, which has given us this kind of a spread.

01:56 So, sir, since you're talking about this better product mix, could you help us understand what

02:02 are the some of the high margin products that you're referring to or that the company has

02:05 started in? See, gold loans, MSME and the personal loan, they're all high margin business,

02:14 including passenger vehicle. Passenger vehicle also is little higher margin for us

02:19 than the CVs. So, this has helped us in increasing our spread.

02:25 And I can also see it in the numbers, the CVs and the PVs have definitely shown steady growth.

02:32 But do you have any plans of increasing movement in the two wheeler and the gold loan segment?

02:37 And what is the near term outlook if I have to look at it?

02:39 The two wheeler will definitely grow this quarter because normally, traditionally,

02:46 people do buy a two wheeler during Dasara. In fact, in this October 24, we had a very record

02:55 delivery of two wheelers. So, you can see a two wheeler book expanding this quarter for us.

03:02 And definitely, this will help us in improving our yields this quarter.

03:07 Okay, fair enough. So, I want to also touch base upon with you another segment, which is the farm

03:13 equipment. If I look at the numbers here, the gross and the net stage three have gone slightly

03:18 up on a quarterly basis. Why is that? And is it like seasonal? Or do you see this trend persisting

03:24 from here? It's a seasonal. In fact, uncertainties in the monsoon did have some impact on the

03:33 collections. But we are not worried on the farm equipment because we have seen in the last, maybe

03:42 one decade or so, farm equipment behaves very well on credit costs, even though there is a delay in

03:48 repayment. But credit cost wise, it behaves much better than many of the products.

03:53 Okay, so you're not really worried about this segment in particular?

03:57 Yes.

03:59 Okay. But so overall, if we see the rural economy is having a muted recovery, and everyone has

04:04 different opinions on this. So, how do you see that affecting the business at this point?

04:10 Now, we do see a good recovery in the rural economy and the demand both. September rains

04:18 have been very good and that has really helped. We do see the increased crop acreage, especially

04:28 for oil seeds because of September rains. And this will now help for rabbi crop because good rains in

04:36 the September and the groundwater level going up, even the stored water level going up is helping

04:42 in the rabbi crop. And I believe the rabbi crop is going to be a record high. Even this

04:50 kharif crop, the acreage has increased compared to the previous year. That means even that also

04:56 should hold good. So, in total, I should say, even the government announced the higher MSP price for

05:03 the wheat, our rabbi crops. So, that is all is going to help the rural economy.

05:10 Okay. So, I think that's a very positive perspective from you, sir. So, largely,

05:13 you are very positive and you don't see any adverse impacts on the business coming from that side.

05:18 Largely.

05:18 Yes.

05:19 All right. So, I was just seeing the figures and if I talk about your customer base here,

05:24 those who are taking personal loans for the first time, they're largely in the average ticket size

05:29 of 40 to 50,000. I'm sorry about that. But, sir, this is also a segment where others have been

05:36 raising alarms on. So, how do you see this panning out? Because recently, even RBI has been talking

05:42 about increased number of problems in this segment. So, how do you see this panning out

05:47 for the company at this point?

05:48 See, the way we have gone about personal loan is totally different. The customers who have already

05:57 having a track record with us in the past, only those people we are giving a personal loan. That

06:04 means people who already repaid a loan and have built a track record, only to those customers we

06:10 are giving the personal loan. Not to the new to Sriram kind of a customer or new to credit kind

06:20 of a customer. That is not the policy. The company is offering only to our existing known good

06:27 track record customer. So, I don't really see any kind of a challenge in this particular loans.

06:34 Just one clarification on that front, sir. So, if we talk about this average ticket size of

06:41 45 to 50,000, it would be the existing customer only that Sriram Finance has.

06:46 Yes, you're right.

06:47 Okay, got your point, sir. So, any new loan segments that you're planning to enter?

06:52 Right now, no, we are not really planning for any new sector. I think our hands are full.

07:01 The existing product itself reaching to all our branches, it will take some more time because we

07:08 are to reach out with our SME product in all our branches. So, it will take some time.

07:15 Okay, fair enough. So, one last bit I would like to understand from you. The cost to income ratio

07:20 has gone slightly down on a quarterly basis. Is there any guidance on how you see this panning

07:26 out in the near future for the company? We did give the guidance in the beginning

07:32 of the year that our cost to income would remain between 25 to 26 and it is around that average. So,

07:41 we will remain at this level for coming quarters also.

07:45 Coming quarters are the next two, particularly here we're talking about?

07:50 Yes, this particular year. It may go down towards that depending upon how our

07:56 digital initiative take place. Okay, all right. Thank you so much,

08:03 Mr. Ravankar for joining us for this conversation and all the very best for the coming quarters as

08:07 well. Thank you very much.

08:17 Thank you.

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