SHRIRAMFIN Q3 FY26 earnings call.
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Shriram Finance delivered a strong Q3 FY26 with disbursement growth of 14.17% YoY to Rs 48,645 crore and AUM growth of 14.63% YoY to Rs 2.92 lakh crore. NII grew 16.17% to Rs 6,764 crore while NIM expanded to 8.58% from 8.48% a year ago, demonstrating successful cost-of-funds pass-through. PAT grew 21.21% to Rs 2,521.67 crore, though this includes a one-time Rs 1,489 crore gain from Shriram Housing Finance stake sale; ex-items PAT was Rs 1,032 crore, up 9.3% QoQ. Asset quality improved with Gross Stage 3 declining to 4.54% from 5.38%, and credit cost improved to 1.62% from 1.85% YoY. The Rs 40,000 crore equity infusion provides 30%+ Tier 1 capital ratio for growth. Rating upgrades from CARE, CRISIL, ICRA, and S&P should reduce borrowing costs by 30-40bps going forward. Management targets NIM maintenance at 8.5-9% and MSME growth re-acceleration above 20%. Key risks: HCV segment facing infrastructure spending uncertainty; LCV/SCV outperforming while heavy CV may see single-digit growth.
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Guidance to track
- Management expects NIM to remain in the 8.5-9% range going forward, with potential for slight improvement from borrowing cost reductions offset by competitive pricing in new vehicle segments. Rating upgrade benefit of 30-40bps should flow through.
- After cautious stance due to US tariff concerns, management is comfortable with MSME customers finding new markets and expects to grow MSME segment above 20% again, recovering from current ~18% growth rate.
- Currently at 2.3% of AUM, management targets growing farm equipment lending to approximately 5% of overall portfolio, leveraging large rural presence that has been underpenetrated.
- Management is cautious on heavy commercial vehicle growth due to lower infrastructure spending in past two quarters, expecting single-digit growth unless government allocates more infrastructure spend in February 2026 budget.
Risks flagged
- Heavy CV segment dependent on infrastructure activity (cement/steel transportation) has seen reduced government capex for two quarters. Management is cautious unless budget announces increased infrastructure allocation on Feb 1.
- Analyst raised concern about ~30% of customers upgrading to banks/captive finance after 6-8 years. Management plans to retain with rate benefits but internal rating-based pricing may create segmentation complexity with better quality customers expecting lower rates.
- Cost-to-income ratio increased to 29.66% from 28.59% YoY due to Rs 196.95 crore one-time impact from new labor code gratuity adjustments. Even ex-gratuity, employee costs rose ~100 crore sequentially despite 1,000 employee reduction, attributed to festive season incentive payouts.
- Analyst specifically asked about contractors awaiting payments from state/local governments. Management acknowledged some state-level challenges but emphasized Central government payments are on time and their customers are not primarily dependent on state government works.
Key quotes
- Utilization level for vehicles are anywhere between 21 to 25 days. So that has been one of the highest. So I think this is very encouraging for all the vehicle owners and we are not seeing any kind of a default kind of a scenario.
- We believe that the net interest margins will be maintained at the current levels if not slightly improving and the great quality improving the rate cost also should come down. So we expect the ROE and ROAS to improve.
- As long as we are within 100 or 150 basis point of the bank offering, they would prefer to remain with us and since these people already are proven with their track record, the credit cost is likely to improve by 10 to 20 basis point on the total book.
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