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Shriram Finance expects over 15% AUM growth in Q2FY27, with H2 growth hinging on monsoon trends. Gold loans remained the fastest-growing segment, rising 46% YoY, while MSME growth stayed subdued at 8%. Vehicle finance asset quality remained resilient, and the lender reiterated its 2% FY27 credit cost guidance. Strong margins, healthy profitability and faster growth in the new vehicle business supported an earnings beat in Q1FY27. |
Shriram Finance expects assets under management (AUM) to grow by more than 15% in Q2FY27 but said the pace of expansion in the second half of the financial year will depend on monsoon trends, particularly in states that have received lower rainfall. The company is closely tracking rainfall in Karnataka, Madhya Pradesh and Chhattisgarh, with management indicating that better monsoon conditions could support faster growth in H2FY27.
While retaining its near-term growth guidance, the lender expects rural demand to remain a key driver of business momentum and will reassess its outlook based on monsoon progress. The management also maintained its FY27 credit cost guidance at 2%, despite elevated net slippages during the quarter, according to a Nomura report.
The report highlighted a strong start to FY27, with Shriram Finance reporting a 60% year-on-year increase in net profit for Q1FY27, exceeding both the brokerage’s and consensus estimates. The outperformance was broad-based, supported by stronger-than-expected trends across key operating metrics.
Net interest margins expanded 97 basis points sequentially as a 51-basis-point increase in yields, aided by gains from funds received from MUFG Bank, more than offset a 12-basis-point rise in the cost of funds due to excess liquidity.
Gold financing remained the fastest-growing business segment, with AUM rising 46% year-on-year after growing 37% in the previous quarter. The company currently offers gold loans through 220 branches and plans to double the share of gold financing in its portfolio over the next three years.
The MSME portfolio, however, remained relatively subdued, growing 8% year-on-year in Q1FY27 after the company adopted a cautious stance amid global uncertainties last year. Gross Stage 2 and Stage 3 assets in the segment edged up marginally on a sequential basis, although management believes incremental stress is limited and expects the portfolio to recover.
Asset quality strong
Asset quality in vehicle financing remained resilient despite a seasonally weak quarter. Gross Stage 2 and Stage 3 assets in commercial vehicle and passenger vehicle portfolios increased only 8-9 basis points sequentially, indicating limited impact from higher fuel prices. The construction equipment portfolio continued to remain under pressure, with AUM still 31% below its peak.
Overall write-offs as a percentage of opening loans remained stable sequentially, although net slippages stood at 2%. The company nevertheless reiterated its FY27 credit cost guidance of 2%, reflecting confidence in the underlying quality of the loan book.
The report also noted that stronger liquidity and an accelerated scale-up of the new vehicle financing business prompted an upward revision to earnings estimates over FY27-FY29, while the lender continues to balance growth opportunities with asset quality as it monitors rural demand and monsoon trends.
