Shriram Transport expects demand growth in H2FY13

Shriram Transport Finance reported a drop in consolidated net profit by 3% at Rs 342 crore against Rs 353 crore, year-on-year, YoY. Its consolidated income from operations was up 5% at Rs 1,598 crore versus Rs 1,523.4 crore, YoY.

In an interview with CNBC-TV18, Umesh Revankar, Managing Director of Shriram Transport Finance Company said their performance has been steady, taking into consideration the weak economic environment. The company has increased disbursements by 9% QoQ and have also acquired 12,000 new customers in the rural market with an aim to add 200 rural units soon, informed the MD.
Revankar further added, Shriram Transport's asset quality remained stable in Q1 and its NIMs grew at 7.42%. Besides, the comapny also reported a 9% YoY growth in the used vehicle segment. When compared the used vehicle margin is more than the new vehicle margins and it is up by 180 bps, said Revankar.
Going forward, the company expects demand to grow significantly in the second half of FY13. It also has several securitisation deals lined up for Q2. Here is the edited transcript of the interview on CNBC-TV18. Q: Can you take us through the numbers? It's a flat performance as far as the topline is concerned?
A: I should say our performance has been steady in this kind of economic environment. Our disbursements have increased, especially in used vehicle. We have increased 9% quarter on quarter (QoQ) with Rs 4370 crore disbursement for this quarter.
On the new vehicle side, it has been flat and I should say the used vehicle growth is mainly because of our entry into rural market. We had started around 200 rural centers and we have acquired 12,000 new customers in the rural market. That is really very encouraging for us.
I feel that should give us very good yield in the long term because we are on the verge of starting another 200 rural units. On the used vehicle front, which is our niche segment, we are strengthening ourselves and getting penetrated in the rural market.
_PAGEBREAK_ Q: What explains the slight fall in profit when you compare it to the year ago quarter?
A: Year ago quarter NIMs have come down a little. But if you see quarter on quarter, our profits have increased on standalone basis from Rs 308 crore last quarter to Rs 321 crore this quarter. I think we have improved on net profits and our NIMs also have improved from 7.24 to 7.42. So there is an improvement in NIMs. Q: What did you say was the total growth in loan compared to the previous quarter and compared to the year ago quarter?
A: Compared to the previous quarter we have grown 7% overall. On the used vehicle front, which is our niche segment we have grown by 9.6%. The growth in our niche segment of used vehicle has been pretty good and it is mainly because of our entry into rural market. We are confident of growing there further. Q: An update on the securitisation, I believe there has been no securitisation this quarter, what's the outlook going forward?
A: Normally securitisation demand comes in the month of February, when the banks too have to maintain certain private sector lending targets.  From September to March, Q1 every year we don’t have any securitisation. I feel in Q2 we will have something. Some securitisation deals are lined up already and we should be able to conclude a few securitisation deals by Q2.
_PAGEBREAK_ Q: Your gross NPAs on a quarter on quarter basis on absolute terms have actually gone up by about 12-13%. What is the outlook on that front? Are you seeing any deterioration in asset quality?
A: Asset quality has remained steady because we were at 3.06 in the last quarter on gross NPA as a percentage. That has improved to 3%. So there is improvement in asset quality. And because of economic slowdowns, certain segments have jumped the buckets because jumping buckets do happen when there is economic slowdown, especially in vehicles which are running for manufacturing activities.
All these manufacturing companies try to conserve their cash as much as possible in a difficult market and try to have free money. Instead of making payments to the transporters, the credit cycle goes up, normally from 15 days to 45 days or sometimes even up to 90 days.
There is some kind of a bucket jump in the vehicles which are typically plying for manufacturing companies. But 80% of our portfolio are running for essentials like milk, dairy, agriculture and most of our customers are on a cash and carry basis. But because of the nature of individual businesses there is a cash flow mismatch and there is a bucket jump. I don't really see this as any sign of deterioration. I feel it has improved over a period. Q: The mix in your on and off book AUM has shifted this time. By the end of Q4 it was 55, this quarter it has moved to 61. Are you seeing this trend sustaining to the rest of the quarter as well?
A: No, it is because securitisation was not done. Securitisation was not done in Q1 so the outstanding securitisation amount of around Rs 18,000 crore has come down to Rs 16,000 crore now. Probably by Q2 when we have done a few securitisation deals, it may come back to Rs 18,000 crore again. Q: How do you see loan growth in the current year, what did you do in terms of total amount of loans given in Q1 compared to the year ago quarter and what is the forecast, is it looking like its going to be a little difficult to push loans?
A: No I feel there will be a reasonably good demand in the second half. I’ll not be able to talk about numbers much because we are in issue mode and we cannot talk about the numbers. But, I am confident, especially in the used vehicles demand side. It is quite good and used vehicle resell prices are good.
The freight rates are good, freight availability is good. So everything looks quite good. Maybe there is uncertainty about monsoon which people may think about or may be postponing but, I think the monsoon will be alright by Q2. We should be having a very good loan growth this year.
_PAGEBREAK_ Q: How are your margins for used vehicles compared with new vehicles?
A: We are always 200 to 400 bps more on used vehicle. Our focus on used vehicles gives us a little better margin. So our NIMs have gone up this time from 7.24 to 7.42. Q: Can you give us even a ballpark idea about how much loan growth can happen this time in FY13 as well, where can the margins stabilize?
A: As I said, we are on issue mode, our NCD (non-convertible debenture) issue is on so we can't talk about the numbers. But the demand in rural and at the micro level is good. There is steady enquiries and all indicators lead us to say that it is a reasonably good atmosphere for us to do business. Q: You don't have to issue capital, do you?
A: We don't have to issue because our capital adequacy is at around 21% in tier1 and tier 2. Tier 1 is at 17%. I don't think we need to issue capital for some more time to come. Q: Do you think you have stabilized in terms of bad loans or can there be some lurking problems?
A: No I think we are steady. There are no lurking problems at all because whatever the surprises we had last year because of a ban on mining and all has gone. We have already minimized our exposure in all these mining areas. So any further improvement in mining activity or infrastructure activity should only boost the demand. Q: On Friday RBI came out with the priority sector rules and now foreign banks also have to meet at least the four of them who have more than 20 branches, have to meet priority sector targets of 40% instead of 32% and what is worse is what they lend to exports will not be counted. Now obviously they are going to jump on every kind of securitized paper, that would be an indirect exposure to priority. Do you expect your cost of money to go down?
A: Hopefully yes. It definitely has to go down and there will be huge demand because we expect the demand to go up. We are the biggest supplier of priority sector asset to the banks. So we feel that there will be very good demand in the second half of this year.