Three questions. I think in the end you mentioned regarding the PD and LGD assumptions that have gone up in this quarter, and maybe that is the reason why Stage 1 ECL has gone up from 3% to 3.3% quarter -on-quarter. Can you just highlight is this because of the COVID data that has come into your ECL model assumptions? And by when do you think this will normalize?

Every year March, we do a reassessment of our PD and LGD rates asset per se, and this year also, we have taken the last 5 years data and done the thing, and we have also factored the economic parameters also into these considerations. And moreover, why the PD rates have marginally gone up is that we are also factoring that day stamping, which we started doing 1.5 years back. So, because of that, the inflow into the other buckets tend to go up as compared to the earlier regime where in the day stamping was not done. And that has led to marginal increases in the PD, which we have started factoring from the current quarter onwards. And the LGD has come down compared to the previous quarter, again, primarily because of the reassessment of the historical data.

So, based on these assumptions and the changes you’ve made, do you believe this can stabilize at 3.3% currently where we are? Or you believe this can move up further?

No, it should stabilize around these levels. Maybe give or take a couple of basis points.

Sir, my second question is you mentioned the incremental cost of fund has gone up in line with the overall cost of funds. So, in that context for, let us say, next year based on that the difference between your stock cost and incremental cost is negligible, assuming no rate cuts, do you believe we can sustain this cost of funds at current levels for next year?

Yes. We can definitely have the current incremental cost of fund to be maintained and not go up any further because we ’re currently at around 9%. And I don’t foresee any reason why it will further go up.

And in this context, if I look at our product mix has been shifting t owards the higher yielding assets, the non-CV proportion has gone up. And I’m assuming that will continue in the next couple of years also. So, in that case, are we confident of maintaining this 9% margin that we have delivered in this quarter?

Yes. Our intent is to maintain 9%, and the product mix definitely will continue to have a focus on high-yielding assets.

That’s great to know. And just last question is with respect to the AUM growth guidance for maybe FY ‘25 and maybe slightly longer. While you have always called out aspirationally 15% is something that you would want to do. But if I look at this year, I mean, you ’ve already delivered 21%. And if I look at a couple of factors. One is the branch productivity will improve as the cross-sell rate increases, and you will add more branches to the fold for cross -sell. So, taking all these things into consideration, why can’t we do 20%?

See, there are a couple of factors. One is this financial year, the first 2 months election will slow down the credit demand to some extent because, see, this is a CAPEX-driven growth, our Indian economy. And when the government machinery are involved in election duty, there is likely to be some slowdown in the CAPEX activity of the government, infrastructure activity. So, we therefore expect a little slower growth in the first quarter. That’s first. And the second is we would like to be as granular as poss ible, not focused on top line growth. Because if we go for big ticket loan, our new vehicle or equipment loan, our big ticket SME loan, we can always grow faster. We will be focusing more on high -yielding products, more granular. So, our aim is to grow the bottom line larger than the top line. That is the idea. So, our focus will be more on a granular small ticket and high -yielding products. So, the entire energy will be on growing the bottom line faster than the top line.

And sir, the credit cost, I mean, now that ECL, even on Stage 1 will stabilize at these levels, what kind of credit cost do you like to guide for fiscal year ‘25?

See, credit cost, we have been giving a long-term guidance of around 2%. And this year, we ha ve ended up with 2.06% against the previous year, we ended up with 1.97% for the full year. And we should be able to maintain that around that level for the full year.

The next question is from the line of Renish from ICICI. Please go ahead.

So, just circling back to what Gaurav was trying to highlight on both side. So, just wanted to know that in terms of the merged entity, where do we stand in terms of the product integration? So, as we speak today, roughly 3,000 -odd branches. So, are all these branches equipped with all products? Or where do we stand in terms of the product integration today? And actually, if we have not reached the maximum level, so despite being the metro for not supporting these segments, specifically vehicle segment in first half due to election. Does the merger benefit drive the growth?

Yes. This is Chakravarti here. As far as branches are concerned, no, we are doing it in stages. So, all the products are not available in all the 3,000 branches and may not be available in future also. Because it depends on where the branches are located and the feasibility, we will be introducing. As we already mentioned, we have added some like close to between 800 to 900 branches for gold loan, SME in another 600 b ranches. So, this is an ongoing process. Probably it will take about a year or so for us to fully take these products to all the feasible locations. The SME may not be available in all the branches because we will be operating on a hub-and-spoke model, where the spokes would be the lead generators and the hub will be the processing and underwriting office. Similarly, gold may not be available in certain commercial vehicle branches because these branches are located outskirts of the city. So, we will not be opening that. So, it’s depending on feasibility. But as I told you, all the products may not be available in all the branches, one. Second is on the growth side, the Commercial Vehicle segment is the largest of the portfolio. And if it is growing at a lowe r pace, obviously, the other products will have to grow at a higher pace. We expect commercial vehicles to grow around 11%, 12%, okay? And that means if we have to reach the 15% AUM growth, the other products have to grow at 20% or more. So, that’s how they will balance it out.

And just a last question from my side. This is a bit on a qualitative side. So, we have recently seen a vehicle financing company with a single large product of roughly Rs. 1.8 billion. So, now given the merged entity, we will be having one of the largest distribution networks physically on the industry space a bit more than 3,000 branches, more than 70,000 odd employees. So, how we will ensure that no such events happening at Shriram?

We have a robust internal audit department and there are also controls and checks and balances at various levels. And we are confident that the frauds of a very big nature will not occur. So, here and there are smaller frauds keep happening, the customer related for, but it’s restricted to say Rs. 1 crore or INR 2 crores, but nothing significant will be against. We have the confidence in our audit and the control mechanisms.

So, would you like to give some, let us say, 2, 3 important points to highlight, let us say, how frequently we do the audit, or do we have external audit structure, et cetera?

We have around 150-odd member internal audit team who visits around 2,300 branches. That is the audit plan for the year ‘24-’25. And to support this, we also have a 200 -member operational audit team, who also parallelly visit all the branches and then ensure that no fraud as such happens. We have market intelligence also.

The next question is from the line of the Adarsh Parasrampuria fr om ENAM Holdings. Please go ahead.

Sir, since you mentioned that the focus will be on profitability. Can you kind of indicate what kind of ROEs you expect? You are at 16% this year. You ’ve created a lot of buffers in provisions. So, any ROEs that you would target over FY ‘25 and ‘26?

See, we have given guidance of 16% to 18% as the range. And we are already at 16-plus. I think this financial year, we should be able to cross 17%. So, that is the target. And definitely, by ‘26 we will be 18%.

And sir, the other question was on the housing subsidiary. The subsidiary has grown well, profitability is strong. A lot of media articles we were, and you have indicated that probably by the end of this quarter, you all can speak a little bit more about what kind of plans you have for that subsidiary. So, if you can just talk about that.

See, our housing subsidiary is growing very fast, and we need to add capital to that for further growth. So, the entire thinking is on providing the growth capital. So, we are looking at various options of providing the growth capital. So, the discussion internally is on nothing, so status quo remains. There ’s nothing decided on that.

Okay. But you would want to get growth capital, and which means that you won’t look to like media articles talk about lock, stock, barrel sales. So, is that option also one of the options.

All the options are open.

The next question is from the line of Meghna Luthra from InCred Equities. Please go ahead.

Sir, I just have 2 questions. One is that since 2 -wheeler sales have been good, the book has still been slow in terms of growth. And the second question is a bookkeeping question. I just wanted some breakup of disbursement according to the segment.

See, 2-wheeler disbursements have definitely grown. But as you know, it ’s a 20-month product. If you look at it year -on-year, there is a 14% growth on disbursement. So, even the number of units also have grown. AUM wouldn ’t have grown significantly because of the tenor being, so the churn is higher there.

And sir, can I please have the breakup of disbursement?

Yes. Maybe we have done Rs. 15,425 crores. Passenger vehicle, Rs. 6,706 crores for Q4, I ’m calling out for Q4. Construction Equipment, Rs. 2,354 crores; Farm Equipment, Rs. 894 crores; MSME Rs. 6,372 crores; 2-wheeler, Rs. 2,602 crores; gold Rs. 3,249 crores; personal loans Rs. 1,722 crores, totaling to Rs. 39,326 crores.

The next question is from the line of Shweta Daptardar from Elara Capital. Please go ahead.

Sir, I might be harping on growth all over again. But then we do understand that the near -term election driven phenomenon would anchor the growth prospects. But sir, 1 year down the line, say, as we move towards FY ‘26 and also given the fact that you mentioned in the beginning that the growth will be more coming from lower yielding products, which today also are potentially or have potential to grow at 30% rate. Then why still our growth targets remain around 15%, 16%? So, what is the expectation 2 years down the line?

See, I think I already explained. We would like to have a more granular growth. We’ll be focusing on our niche area of small ticket lending, where high - yielding assets will be given a little higher weightage, and we are al ready a large base. And the growth will be calibrated, and we will be focusing on improving the bottom line. So, the entire focus is to bring efficiency and profitability, not the top line growth.

Sure, sir. Sir, secondly on the credit quality. So, in terms of Stage-3 and so also similar trends in Stage-2. Sir, we have seen drastic improvement there, which wherein even our credit cost guidance of 2% is coming. So, do you see further improvement in GNPAs of Stage-3 going forward, given that the credit cost which you are guiding is expected to drastically come down to 2% odd levels from 2.3% to 2.4%?

See, our target is as the economy improves and our target of Stage-3 is we are at 5.45% now. We will be moving towards 5% by the end of the financial year. So, that is the target we have. And net will be around 2.5%. And credit cost, by and large, will remain on a similar line, maybe around 10 basis points plus or minus.

The next question is from the line of Chandrasekhar Sridhar from Fidelity International. Please go ahead.

I have few questions. One for Parag, you sort of mentioned that interest cost would be causally flat. I do notice though you have increased FD rates recently. So, just far and given that it ’s a reasonable chunk of our borrowings, maybe just some thoughts on how did it result in interest cost being constant? Second, another question for Sunder. Maybe could you share the write -off number for the quarter ? And then for Umesh. Can you share a few thoughts around price versus volume in the CV segment. How has been that this year? How do we see that moving into the next couple of years in terms of the CV business? And because at some point in time, the BS -VI vehicles will start coming into our portfolio, which should result in some level of step -up in pricing. So, just curious to see why you are still guiding for 11%, 12% only because my understanding is that BS -VI eventually starts getting into our portfolio by the latter half of this year?

What you ’re saying is right. We have increased our deposit rate not very significantly, between 5 to 10 basis points, what we have increased. And only in one bucket, we have increased by around 20 basis points . But overall, that deposit portfolio until it substantially goes up, then only there can be increase in costs. Otherwise, that there’s only on the incremental borrowing that rate is applicable and not on the existing book. So, that is one part. On the oth er piece is, which is largely the domestic borrowing that are what we are focusing upon now, we have done large ECB borrowing in the January to March quarter. We don’t foresee substantially going to the offshore market again for a further raise. Domestic r ates are holding up. There is no increase there. So, that is the reason I’m saying that cost may not go up substantially. It may be a few basis points here and there can be there, but I don ’t foresee any substantial increase in cost.

And on the breakup of rate costs for the quarter, bad debts, which was written off was Rs. 805 crores, and the incremental provisioning was Rs. 456 crores, totaling to Rs. 1,266 crores.

Coming to CV. See, used vehicle price increase was witnessed i n the last financial year, there is an increase of around 25% for all the used vehicle, whether it is BS -II or BS -VI, we can get repriced almost on similar rate depending upon the vintage, the price is going up because of the new vehicle price goes up. So, this increase has already come into the factor, hence we have guided 12%. Actually, we have grown 14.6% on CV in this financial year. Going forward, you are right, the prices of the used vehicle will remain strong and further up. Therefore, there is a sco pe for us to increase our used vehicle portfolio. The supply of used vehicle right now is restricted because the new vehicle sale was less in the 4 years back or 5 years back. So, for 2019 to ‘22, the sale of new vehicle was depressed. So, there are not enough supply per se. And the current new vehicle that’s the last year and this year’s new vehicle will be available in the market, maybe a couple of years from now. That means there will be a robust supply of used vehicle for the next 4 to 5 years. That ’s what we feel confident that our CV portfolio will keep growing, but at a steady pace, maybe between 12% to 15%, it will be growing very steadily. But there will not be a big increase or big numbers in the immediate future, it will happen over the next 3 to 5 years.

Is it fair to say that the volumes actually were down this year. Basically, the growth is largely utilized in them because if you say being a 25% increase in price over the last couple of years, it means that bulk of the AUM growth essentials is pricing, which is coming of the vehicle?

It is around 5% factor. As I say, a 15% growth, 5% is due to the price increase. And 10% is due to the new addition.

Right. Okay. Then a couple of projects, personal loans, we have seen a pretty reasonable sequential decline, your thoughts around that. And then lastly, on OpEx, obviously, the last year, 1.5 years, we have been adding people through the franchise, but the sort of later employee addition now slowed down a little bit. How should we think of new employee addition OpEx over the next year or 2?

Chandra, this is Chakravarti here. I think on the employee side, you will see that slowdown. We wouldn ’t be adding much. Probably we will be adding people when people are on notice period, we will be picking up some people. So, basically, we have created a small bench. So, small recruitment will continue, but nothing substantial will be added, one. On your personal loan, yes, we just ti ghtened our…. slowed down of the business because of the concerns that the market is expressing over it, though we are pretty confident about the portfolio quality.

I now hand the conference over to Mr. Umesh G. Revankar for closing comments. Please go ahead.

Thank you. Thank you for joining this call. And this quarter has been one of the best quarters for us on stability, improvement in asset quality and growth. Even though the growth may be a little slow in the first quarter of this financial year, with the IMD prediction being positive on monsoon, IMD and Skymet, we expect good demand that will come from the rural area in the second quarter. And expecting that, I think the first half of the year we should be able to see very steady growth and with the new government coming in and a lot of new projects may be announced and also will give impetus to existing infrastructure project. All in all, next quarter when we meet, we will have a lot of good things to talk about and a good performance. Thank you very much.

Thank you. On behalf of Shriram Finance Limited, that concludes the conference call. Thank you for joining us. You may now disconnect your lines.