Umesh Revankar, Managing Director of Shriram Transport Finance Company expects a 14-15 percent AUM growth for new vehicles in FY17.
Speaking to CNBC-TV18, he said demand will be subdued in H1FY18 due to implementation of Goods and Services Tax (GST). However, there will be accelerated demand thereafter, provided we get good monsoons, he added.
“February and March we are witnessing good demand for new vehicle. So, our growth should be around 15 percent assets under management (AUM) over the previous year. For 2017-18, I feel the first six months will be little low growth scenario mainly because GST is around and nobody is sure how the price of the vehicle will play around,” he said.
According to Revankar, demand in rural sector is improving gradually and harvesting season in April will result in increased demand for financing of trucks. He added that reduction in MCLR rates, replacing the old borrowing rates leaves them with an advantage of at least 20bps on cost of funds.
Customers are increasingly relying on payments through cheques and banking transactions and are relying less on cash for payment increasingly, he said. He also said that liquidity has improved drastically in the system in February post demonetisation lows.
Below is the verbatim transcript of Umesh Revankar’s interview to Latha Venkatesh, and Sonia Shenoy on CNBC-TV18.
Sonia: Amidst the many issues we want to discuss, want to first start by asking you about whether normalcy has returned to the industry post the demonetisation impact?
A: As of now, it looks like as if normalcy is back. January was the one month post the new currency being totally part of the system and by February we are seeing enough liquidity. The cash component which was a major repayment for us till maybe prior to demonetisation, slowly is coming down and after reaching a bottom then again we are seeing some increase in cash component. So, I feel this is a clear picture of where the people have adopted to the new situation where there is a certain amount of cheque transactions, certain amount of banking transactions, and certain amount of cash transaction.
So, people are getting adjusted to that and overall individual truckers, individual operators who predominantly preferred to deal with cash, are today getting into both equally comfortably because they are also encouraging the transporter to pay them in cheque and they are in turn paying us in cheque or through digital mode. So, there is some kind of comfort with our customers and comfort with us.
Latha: Would you say life in February and say mid-January to mid-February is as cool as October or are we still getting there?
A: I should say we are getting there because there are several factors that have happened. Now, the agri produce which were not fully sold in the month of November-December due to lack of cash is getting sold and prices are also slowly becoming better. The rural economy which was little taken a shock of cash not being there, today is coming to normalcy. Demand in rural sector is slowly increasing.
What happens is, the truckers need two side load to move from rural to urban, urban to rural. If their two side loads are full, then his earnings become much better. So, I feel that situation is slowly coming and I think we are moving towards because as we move towards April because April is the time you get another big cycle of season of the harvesting that is rabi crop, so as he moves there, again the demand from the rural will go up because April-May is the peak harvesting for wheat and many other rabi crops. I think his cycle will be almost complete by April-May, so, the truckers are feeling comfortable in the new situation.
Latha: Ultimately demonetisation will be a transitory factor, so, if you can tell us for FY17 for the current year what is likely to be the loan growth over last year and because you are speaking about BS IV if you can give us some idea of how the loan growth will be in FY18 and separately margins as well?
A: February and March we are witnessing good demand for new vehicle. So, our growth should be around 15 percent assets under management (AUM) over the previous year. For 17-18, I feel the first six months will be little low growth scenario mainly because GST is around and nobody is sure how the price of the vehicle will play around, whether it will increase or reduce or when it will be getting implemented. That is one scenario.
Second, there will be already a pre-buying, so, fresh sales in April to June-July period will be much lower and monsoon also will have some impact. So, first six months the demand will be lower for a new vehicle and thereby it will also reduce the demand for used vehicle to some extent because people don’t change hand. So, post October, the demand should come and I expect the demand should be much higher because if the monsoon is good, because already we had a very good kharif crop and very good rabi crop. So, on back of that if you have another good monsoon, it will have demand getting picked up in the rural sector.
The government is also putting a lot of emphasis on infrastructure. Right now the government expenditure and government infrastructure push is very high and I feel that will create demand. However, the demand should come more into the construction equipment and dumper category in the month of April-May and post October, the growth should be very good. So, we should be able to maintain around 14-15 percent AUM growth next year also if the monsoon is good.