Shriram Finance Q2 profit jumps 59% YoY to Rs 3,677 crore on strong interest income, lower funding costs

Net interest margin improved to 9.52% from 8.19% a year earlier. “Our long-term guidance has consistently been around 8.5%, but it will take some time to return to that level. For the next two quarters, we expect NIM to remain around 9%,” Parag Sharma, MD & CEO told ET. He attributed the growth in profit to two factors. “The first was growth in business volumes, and the second was the substantial benefit from lower interest costs, which lifted net interest income,” he added.

Net interest income rose 38% to Rs 8,661 crore from Rs 6,267 crore. The increase was driven by a 15.6% rise in interest income to Rs 13,669 crore, while interest expenses declined 9.9% to Rs 5,008 crore.

Operating profit increased 53.3% to Rs 6,809 crore, while the cost-to-income ratio improved to 22.52% from 27.76%. Core operating profit, which excludes other income, rose 53.5% to Rs 6,682 crore.

The profit growth came despite a 41% increase in loan losses and provisions to Rs 1,877 crore from Rs 1,333 crore in the year-ago quarter. On a sequential basis, provisions increased 28.3%.

Total income rose 15.8% to Rs 13,799 crore, while profit before tax increased 58.6% to Rs 4,932 crore. Net profit was 6.8% higher sequentially from Rs 3,445 crore in the June quarter.

Assets under management grew 17% year on year and 4.9% sequentially to Rs 3.29 lakh crore at the end of September. The broader vehicle and equipment portfolio stood at Rs 2.61 lakh crore, representing 79.46% of total AUM.

Gold loans, with an outstanding portfolio of Rs 8,974 crore, recorded the fastest annual growth of 68.2%, followed by passenger vehicle loans at 20% to Rs 71,542 crore, commercial vehicle loans at 19.4% to Rs 1,53 lakh crore, and personal loans at 18% to Rs 12,415 crore. Construction equipment financing declined 22.4% to Rs 11,930 crore.

Asset quality was mixed. The gross stage-three ratio increased to 4.65% from 4.57% a year earlier and 4.64% in the preceding quarter. The net stage-three ratio, however, improved to 2.31% from 2.49% a year ago and 2.33% in June, as the provision coverage ratio rose to 51.48% from 46.70%.

The company’s capital adequacy ratio increased to 33.24% from 20.68% a year earlier, supported by the capital infusion from MUFG Bank. Return on assets improved to 3.95% from 2.89%, while return on equity declined to 13.19% from 15.10%, reflecting the expanded equity base.

The board declared an interim dividend of Rs 6.50 per share for FY27. October 29 has been fixed as the record date.