India’s Shriram Finance beats profit view on lending growth in small businesses, commercial vehicles

India’s Shriram Finance reported a bigger-than-expected second-quarter profit on Friday on steady lending growth in its micro, small and medium enterprise (MSME) and commercial vehicle sectors, sending shares up 4.3% to hit a record high.

The non-banking finance company’s (NBFC) profit rose 11.39% year-on-year to 23.07 billion rupees in the three months ended September 30. Analysts, on average, had estimated 22.29 billion rupees, as per data compiled by LSEG.

Demand for used vehicles climbed in the passenger and commercial vehicle segments, especially in semi-urban and rural areas, as ownership costs of new vehicles tick up, according to a report by ICICI Securities.

Additionally, financing costs in the MSME sector showed signs of easing, pushing up demand, while lower input costs and stable margins helped.

Shriram Finance’s commercial vehicle loans rose 14.21% and loans to medium and small businesses grew by 25.81% year-on-year. Loans in the passenger vehicle and two-wheeler segments climbed about 21.53% and 18.81%, respectively, year-on-year.

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These four segments account for nearly 87% of the company’s total assets under management (AUM), which rose 15.74% to 2.813 trillion rupees in the quarter.

The company’s profitability metrics showed signs of improvement. Net interest income - the difference between interest earned on loans given out and paid on borrowings - rose 11.77% to 62.67 billion rupees, while its gross stage 3 assets, or loans overdue for more than 90 days, declined 0.22% year-on-year.

Reports that Japan’s Mitsubishi UFJ Financial Group is in talks to buy a 20% stake in Shriram Finance led to the stock gaining nearly 20% in October. Shriram Finance has denied the reports.

Separately, the company announced its Chief Financial Officer Parag Sharma has been re-designated as CEO.