Shriram Group lowers growth forecast for merged financial businesses in FY23

Cautious about the pace of expansion of its loan portfolio, the Shriram Group has lowered its growth estimates for the business of non-bank financial companies, as part of the merged entity, from 15% to 12% in FY23.

The growth rate (on an annual basis) may decline when lending rates rise, and the demand for credit may also decline to some extent. Growth for the combined entity (post-merger) could be around 12% compared to earlier guidance of 15% for FY23, said Umesh Revankar, vice president and general manager of Shriram Transport Finance Company ( STFC).

“It comes more out of caution. Currently the demand in the system is good but I don’t know what it will be a few months down the line. Before Diwali the demand is increasing and after Diwali it will be clear if the demand is sustainable “said Revankar.

BSE-listed Shriram City Union Finance Ltd and Shriram Capital Ltd are set to merge with STFC. The merger is expected to be finalized in October 2022.

Assets under management (AUM) of STFC increased by 9.55% year-on-year to reach 1.30 trillion rupees at the end of June 2022, compared to 1.19 trillion rupees a year ago. Shriram City Union recorded a 20.6% annual growth in assets under management to Rs 0.40 trillion at the end of June 2022.

Revankar said AUM growth over the past three years (Fy19, 20 and 21) has been moderate (lower than 10% YoY) due to the liquidity challenge for financial companies and the Covid-19 pandemic. 19.

Regarding resources on the book, STFC would also reduce excess liquidity on the books by paying down maturing debt and deploying funds into lending activity.

Revankar said liquidity will start to be used as demand for credit is strong. Also, some maturities (of bonds) occur. It would be reduced to a three-month level from a six-month level. This will be done over three to four quarters.

At the end of June 2022, STFC was carrying excess cash of Rs 18,000, and maturities for the next three months are Rs 8,000 crore. This liquidity was sufficient to meet the maturities of the next six months. There is a lump sum liability, the currency liability of dollar bonds, which is in October, which is the main reason for carrying excess cash.