Shriram Finance, a prominent non-banking financial company (NBFC), announced a robust third-quarter financial performance on Friday, with profits surpassing market expectations. The company's adjusted net profit for the quarter ended December 31 soared by 21.25% to reach 25.22 billion rupees (approximately $274.9 million). This impressive figure exceeded the average analyst estimate of 24.15 billion rupees, as compiled by LSEG data, highlighting the company's strong operational momentum.
Key Drivers of Growth
The profit surge was primarily fueled by significant expansion in Shriram Finance's lending activities across key segments. The company experienced notable growth in loans for commercial vehicles, passenger vehicles, two-wheelers, and small to medium enterprises (SMEs). This growth aligns with broader trends in the Indian lending sector, which reported double-digit loan growth during the October-December period, supported by festive season spending and consumption tax cuts.
Segment-Wise Performance Breakdown
A detailed look at the segment-wise performance reveals substantial year-on-year increases:
- Commercial Vehicle Loans: As the largest segment for Shriram Finance, loans in this category rose by 15%, driven by robust economic activity and a good monsoon that boosted sales.
- SME Loans: Lending to medium and small businesses grew by 18.61%, reflecting the company's focus on supporting entrepreneurial ventures.
- Passenger Vehicle Loans: This segment saw a significant climb of about 21.84%, indicating strong consumer demand.
- Two-Wheeler Loans: Loans for two-wheeler purchases increased by 12.73%, contributing to overall asset growth.
Together, these four segments account for more than 87% of the company's assets under management, which expanded by 14.63% to 2.917 trillion rupees by the end of December.
Financial Metrics and Strategic Developments
Shriram Finance's net interest income, which measures the difference between interest earned on loans and interest paid on borrowings, rose by 16.17% to 67.64 billion rupees. Additionally, the net interest margin improved to 8.58% from 8.19% in the previous quarter, signaling enhanced profitability. On the risk management front, loans overdue by more than 90 days declined by 2.96% year-over-year to 131.21 billion rupees, indicating better asset quality.
This quarterly report marks Shriram Finance's first earnings announcement following a major strategic development. In late December, Japan's largest bank, MUFG, agreed to acquire a 20% stake in the company for $4.4 billion. Analysts have noted that this equity infusion is expected to reduce Shriram Finance's cost of funds and support the expansion of its loan book in the coming years, positioning the company for sustained growth.
Industry experts, such as those from Centrum Broking, have pointed out that auto sale volumes remained strong during the quarter, with festive season economic activity being particularly robust. This environment, aided by favorable monsoon conditions, played a crucial role in boosting commercial vehicle sales and, consequently, Shriram Finance's lending performance.
