Second hand HCV sales growing 9%: Shriram Finance

Umesh Revankar, Executive VC, Shriram Finance, says the company is growing at 30% in passenger vehicle financing, as well as gold and two-wheeler and the MSME, where they are growing at 30%. So, this is balancing out on how Shriram Finance can grow in various markets. CV demand also will come with a lag because as the new vehicle sales which have improved in the last two years, there will be improvement in commercial vehicle financing also.



Let us discuss your AUM growth because in the last three quarters, that has been around 20%. Do you think that this year can end with a growth of 20% or maybe higher than your medium term guidance of 15%?


Umesh Revankar: The AUM growth has been steady, especially the credit demand coming from urban and rural both and that is really helping us. And for this year, 20% should be the target even though we have given a long term 15% CAGR growth for three years around the merger. But now in the first year, the credit demand being strong, we were able to grow 20%. Plus, the synergies are working out well.

The synergies of merger, cross-selling of product in the branches of erstwhile Shriram Transport and Shriram City Union, now that it is a merged entity and we are able to really play it wellhas helped the growth of the volume. Plus, we are able to also improve the margins.

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Your loan growth, other than CV and equipment finance, is at 32% on a year-on-year basis. Your growth in CVs was a bit tepid. Segment-wise, how is your growth going to look? Are there going to be any pockets where you are seeing growth could potentially moderate?

Umesh Revankar: CV is something where we had indicated at the beginning that we would like to grow between 12% and 15% because, if you look at the last four or five years, the new vehicle sales have not been strong and it has been growing in the last two years only. And since we have a portfolio which is mostly used vehicle financing, individual vehicle operators, we did expect that it will grow between 12% to 15%.

In other products, especially if you look at the gold loan or two-wheeler loan, or even passenger vehicle, what makes it different is the passenger vehicle is something which we were able to cross-sell across all branches, and that is really holding out well. We are growing at 30% in passenger vehicle financing, but as well as gold and two-wheeler and the MSME, we are growing at 30%. So, this is balancing out on how we can grow in various markets. CV demand also will come with a lag because as the new vehicle sales which have improved in the last two years, there will be improvement in commercial vehicle financing also.

Historically, the second half is always better for CV sales, and especially the last quarter. So, do you see this time that the same factor could be at play, which is that the current quarter will be the best quarter for the year?

Umesh Revankar: Yes, you are right. Normally, the fourth quarter demand is always high. And also the government spend around this time is always peak around the budget and allocation. All those things helped in the fourth quarter. And I do believe that CV sales will peak in this quarter. But still if I look back at 2018-2019 numbers, the CV sales are just on par or less than that. So, I think there is still another one or two years for new CV sales to grow.

The residual stake of the Piramal Group in Shriram Group of companies, when do you see the transaction getting concluded?

Umesh Revankar: It is subject to various approvals. I think we are hopeful of completing it by this financial year.

This financial year, would the Piramal Group exposure to various Shriram Group of companies actually be zero?

Umesh Revankar: No, they still continue to be in insurance through the insurance holding companies. They will take a call depending upon Piramal Group strategic goal.

Let’s look at the numbers which we are getting from banks, which are also in the same business of CV financing. In the case of IndusInd Bank, there is a slowdown in their vehicle finance business. They are big players. They are like a canary in a coal mine. Don’t you think that the CV business is getting slightly toppy where the base effect has kicked in?

Umesh Revankar: It all depends upon the segment which you are in. Since we are in the segment where individual operators are operating, we feel that with a better network, better penetration into deeper pocket, we will keep growing. I do not really see any lack of demand anywhere. The used vehicle resale prices are still holding good. The new vehicle sales look slowed down a little, especially in the LCVs. LCV sales are flat year on year, but the heavy vehicle sales are still growing near to double digit around 9%.

Following new norms in terms of the scrapping policy, how do you see the second hand CV market moving? Let us say a diesel car today has a life of 10 years which means after the 7th or the 8th year, the terminal value actually will come down. So will the same apply in the CV business also, especially the second hand CV business?

Umesh Revankar: It plays out a little differently. The scrappage policy was already announced, there is nothing to be surprised now. The scrappage is going to be voluntary, not compulsory. So if there is a fitness for the vehicle you can continue to run the vehicle even up to 20 years whether it is a car or a vehicle. The diesel vehicle restriction has come only in Delhi because they do not want more than 10-years-old vehicles to be registered or transferred or go for a fitness beyond 10 years in Delhi but that is not the case across the country.

So whatever is the scrappage policy decision, they wanted to make a change in the CV or in the commercial vehicle or in the diesel vehicle already made. I do not see any further changes into that so unless there is more incentive for scrapping the policy on a voluntary basis there may not be a significant change in the ownership pattern.

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