SHRIRAMFIN Q2 FY26 earnings call.
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Shriram Finance delivered steady Q2 FY26 results with PAT growing 11.4% YoY to ₹2,237 crore and AUM expanding 15.7% YoY to ₹2.81 lakh crore. Net Interest Income rose 11.7% to ₹6,267 crore, though net margin compressed 55bps YoY to 8.19% due to elevated liquidity costs. Asset quality improved with Stage 3 GNPA declining to 2.49% from 2.64%, while credit costs remained controlled at 1.68%. Management expects NIM to recover to 8.5% by Q4 FY26 as cost of funds continues declining from 8.95% in March 2025. October demand appears robust, supporting guidance for accelerated AUM growth in H2. Key risks include margin pressure persistence, GST-related used vehicle price uncertainty (especially in PV segment), and potential MSME stress from US tariff impacts on export-dependent small businesses. Construction equipment portfolio warrants monitoring given state government payment delays.
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Guidance to track
- Management guided that net interest margin will reach 8.5% by exit Q4, with full-year average expected between 8.25-8.3%. This assumes reduction in excess liquidity and repricing of liabilities over 18 months.
- October demand is described as very good with Q3 expected to show higher growth than the current 15.74% AUM growth rate, potentially adding another 2% growth for second half.
- Company plans to maintain NCDs at approximately 30% of liabilities (currently at 28%) with additional funding through domestic capital markets and offshore borrowings as needed.
Risks flagged
- Some MSMEs have up to 60% exposure to US markets. While diversion to domestic market is underway post-GST cuts, tariff-related uncertainties could stress certain segments like fisheries and prawn culture.
- Analysts questioned whether GST rate cuts (28% to 18%) would reduce vehicle prices and increase repossession losses. Management asserted prices haven't corrected yet but acknowledged uncertainty for PV segment specifically.
- Management acknowledged deliberately reducing construction equipment exposure due to delayed bill payments from state governments. Stage 2 bucket showing elevated stress in this segment.
- Transaction volumes have declined as customers extend vehicle usage due to higher prices. Management expects volumes to normalize over 3-4 years as prices rationalize.
Key quotes
- The reduction has come in in the later part of September. So as we guided in the last quarter the exit of fourth quarter the net interest margin will reach out to 8.5%. So on average it will be anywhere between 8.25 to 8.3 for the full year.
- Our customers are retail customer and they have small businesses. So we will not have a full view of their cash flow but we do understand there is a cash flow improvement for each of our customer and by having access to them, reach to them, understanding their business we do help them in the better management of financial situation and therefore our recovery is based on the reach the customer.
- If the prices go up then it is good for us because asset quality of a second-hand vehicle or the our LTV coverage will be higher. If the prices come down then also we are fine because the down payment has been higher from the customer.
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