See 10% growth in AUM this year: Shriram Transport

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Shriram Transport Finance Corporation has reported a sales turnover of Rs 1,447.07 crore and a net profit of Rs 299.41 crore for the quarter ended September 2011.

In an interview to CNBC-TV18, R Shridhar, managing director of Shriram Transport Finance Company says, flat profit is on account of higher provisions and write offs.

He sees 10% growth in assets under management this year. He doesn't see any pressure on margins. 

He further says, the exposure of the company to the mining sector is less than 1%.

Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Reema Tendulkar. Also watch the accompanying video.

Q: There has been a very sharp increase in your provisions. Could you walk us through where the pressure is felt? Was it more or less on account of the exposure you more or less have to the Bellary district?

A: This quarter flat profit is on account of higher provisions and write offs. The company has been following a conservative provisioning policy for the past many quarters.

Beyond the prudential norms, we have been making additional provisions. We are concentrated in cyclical industry and our board felt that it would be better to create a buffer and cushion. So, we have created a good coverage of provisioning of more than 80%.

As of September 30, we carry a coverage of 85% provisioning. In terms of the amount we have more than Rs 400 crore provisions to protect the company against any eventual possibility of any loss in the future.

Exposure on the mining sector, vehicles which are used for mining and mining transportation, has been hit and because of that we have incurred some write offs.

We had the option to write back some of the excess provisioning. Against that, this loss could have been done. But looking into the next six months, we felt it is better to write off and have moderate profits and keep the cushion intact. That is why we have done it.

The exposure of the company to the mining sector is less than 1% in terms of number. But it is unfortunately beyond our control. First, the state government prohibited exports of iron ore ban. And then subsequently followed by Supreme Court's entire ban in State of Karnataka as well as in Goa where we had some vehicles.

The customers have not been able to pay. They have surrendered the vehicle, where we have put pressure on collection. We have to liquidate these vehicles and the difference has been written off.

Q: How do you expect things will pan out?

A: I am not able to put a number. But except the mining sector, generally the commercial vehicle industry is able to directly link to the economy and GDP. You know that infrastructure sector is slowing down. There are many sectors which are slowing down. It will have an impact.

Having said that, we have more than 98% on standard assets. Whatever hit we have taken in mining is also out of standard assets. I don't think the non-performing loans will deteriorate further. As prudent policy, we have created cushion and buffer. So that will come handy for that.

There are multiple challenges the NBFCs are facing including the CV industry, sluggishness and regulatory challenges. So, it is going to be little bit bumpy and turbulent for the next six months.

Q: Could you give some number on the growth indicators? Your margins have done well, you have done nearly 8.2%, will that be the average for second half? Loan growth, what kind of a number can you give?

A: The demand for new vehicles has slowed down. Unfortunately because it is on account of interest rate increase, it is also catching up in the used vehicles where we are predominantly engaged. So, we are not acquiring assets.

We have moderated our growth. We have talked about 15-20% in the beginning of the year and then revised to 15%. I would say that now we will grow 10%, our assets under management, this year. That is the projection as of now.

Demand is quite sluggish and since the interest rates are not moderated. Once it starts moderating, then the demand may pick up

Q: Will you maintain margins at 8%?

A: We have always been operating in 7% to 8%. But since we have converted all our liabilities fixed rate loans, we don't face any pressure on margins. So that continues to be good. Even in this quarter, it went up substantially.