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00:00Hello and welcome. Thanks for tuning in to NDTV Profit. I am Harsh Saita and we have

00:10with us the management of Sriram Finance Limited. We have Mr. Umesh Divankar, Executive Vice

00:15Chairman at Sriram Finance. Welcome, sir. Good morning. Sir, growth has been very strong

00:21for you, 21% for a second consecutive quarter when I am looking at it. Why oh why? Sir,

00:28tell us, you have guided for 15, 15% for FY25. Likely will you be exceeding that guidance?

00:37Yeah, good morning. Yeah, the first quarter we were a little cautious because of the long

00:45election process. And many of our business activity are dependent on our government functioning

00:53both at state and central level. And since the both the government departments get involved

01:01in the election, we were a little apprehensive about the growth, especially RTO not functioning,

01:09some of the infrastructure activity going slow. But this during the election, we did

01:14not see any kind of challenges on the growth or credit demand has been quite good, positive

01:23throughout. So, we were able to grow very comfortably at 20% on the top line. At the

01:31same time, there has been a good improvement in the bottom line also because asset quality

01:37is holding good. And overall, the economic activity or earning of our customers have been

01:45pretty strong and good. So, we are comfortable with the opening first quarter and that should

01:53continue for the rest of the year is what I believe. But Q2, we will be a little cautious

01:59because there is excessive rains. Sometimes excessive rains can delay the sowing process.

02:06But right now, South India is seeing the excellent monsoon and hopefully, that will help us in the

02:17Q2. But H2 will be definitely very good because following the good monsoon, you will see excellent

02:25demand coming up in the rural market and also in the urban market. So, we expect quite a positive

02:33growth in the H2. So, Sir, you are throwing various statements which seem to suggest

02:43that 15% growth plus could be very, very likely. Would that be the case?

02:50Yeah, that is the case. That's what I have been trying to say.

02:53Understood. Okay. Sir, I want to also talk about, before I go to the very impressive asset quality

02:59you have generated this quarter, I want to talk a little bit about margins. They have contracted

03:06around 20 bps or so sequentially. Do you believe this is the bottom with regard to margin pressure

03:12or do you still believe that there is more to come? There is no actually margin pressure here.

03:19Normally, the Q1, you will have a little lower margin because the Q4 of the previous year,

03:27what happens is a lot of new vehicle financing, which is normally low yielding, that is done

03:33in the month of March and that gets reflected in the month of the first quarter result of the

03:41following year. So, last year, if you look at the Q1, the net interest margin were 8.33. So,

03:49vis-à-vis the net interest margin has improved to 8.79, even though sequentially it has marginally

03:56come down. That gets corrected with the two things. One, there will be a higher used vehicle

04:03lending in this financial year in the beginning and plus the product mix also, we had moderated

04:12our lending in gold and personal loan in the first quarter because of certain credit tool engines,

04:21which made changes in our system. I think that is now being done. We should be able to grow faster

04:30in the rest of the period. So, the net interest margin should improve from here. We should be

04:38able to have maybe somewhere around 8.8 to 8.9 during the rest of the financial year.

04:46Okay, point taken. So, when I am looking at a couple of the positives that have come through,

04:53especially on asset quality, you stood out when it comes to asset quality versus

04:58peers versus industry. Tell us what is helping you do that?

05:03I think basically it is economic activity, not getting disturbed or rather being going strong,

05:10that is really helping us. There is still a shortage of vehicle that for the demand for

05:17the vehicles are high, freight rates are very good, where business is very profitable when it

05:22comes to commercial vehicle transportation, plus same thing holds good for passenger vehicle

05:29transportation. And SMA business also are doing quite well because of a reasonably good margin

05:37in the business and the economic activity being strong, there is no delay in payment.

05:44So, working capital cycle has not prolonged for the small, what we call businessmen. So,

05:53whenever the working capital cycle gets prolonged, the small businessmen suffer. This time around,

06:00I see it is still good and I think it will continue to remain good.

06:06Right, Mr. Ravankar. Sir, if I can come back to some of your levers of growth,

06:13passenger vehicle 6 plus percent on a sequential basis, farm equipment 7 plus percent on a

06:20sequential basis, MSME 10 percent on a sequential basis, nearly 10 percent. Sir, first off, is this

06:27kind of growth number sustainable going forward? And secondly, in certain segments like MSME,

06:35what is the risk like? Do you believe that there is some level of risk in some of these segments?

06:43Just give us those thoughts. In the MSME business, we are focused on

06:50micro enterprises and average ticket size anywhere between 7 to 8 lakhs average for larger ticket

07:00size and also we have a smaller ticket size which is less than 3 lakhs. So, most of this

07:07lending is done by having a security, additional security of a mortgage of a property. Therefore,

07:15most of the businesses are well secured before lending. Even though the cash flow of the

07:24business is looked into before lending, there is additional security for lending. And since we are

07:31mostly focused on tier 2 and lesser towns, we are very comfortably able to maintain our margin plus

07:40get that additional security for lending. Right. And sir, just the growth sustainability

07:48on some of these segments.

07:49Growth, there is a huge credit gap as far as MSME segment. If you look into some of the reports

07:57that suggest that there is a huge credit gap in the MSME lending and I think therefore,

08:07the opportunity is huge and we are just focusing on a very small part of the SME

08:17segment, especially we are focusing on the micro enterprises

08:21which who are in the tail end of the distribution or manufacturing. So, that's how we are able to

08:29build our business in the smaller towns. All right. Mr. Rivankar, it's been a pleasure

08:35speaking to you. Thank you so much for that perspective. Of course, very strong numbers,

08:39impressive numbers, the markets too reacting to those numbers both on Friday as well as today.

08:44Thank you so much for speaking with us, sir.

Shriram Fin: Outlook On MSME Segment | NDTV Profit

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