Expect 10-12% growth in NII going ahead: Shriram Transport

Shriram Transport Finance – a financier for small truck operators, has of late seen some signs of stress on its credit quality during the January – March quarter. This has led to some contraction in its net interest margin. The moderation in growth, according to Umesh Revankar, managing director of the company, is due to decline in consumer demand over last one year. 

However, monsoon, rabi crops, fruit season and festive season are some of the key factors, which can trigger better quarterly performance going forward. The company, which gives loans to buy used vehicles, is also exploring to get into newer vehicles observing an upward trend in new vehicle sales On the net interest income front, he told CNBC-TV18, “We should comfortably be able to maintain around 10-12 percent in the next year.” Moreover, they expect to maintain yields at current levels. Below is the verbatim transcript of his interview on CNBC-TV18 Q: You have seen some pressure this time around both on margins as also on asset quality. Could you walk us through the reasons for why there was a more subdued performance? What do you expect to see through the course of the next few quarters on margin improvement and whether or not asset quality as well will likely improve? A: As far as asset quality is concerned; there is consistent reduction in consumer demand over the period of last year if you look at the GDP growth. Earlier, the consumption demand was pulling the economy till almost maybe the third quarter and in fact till December-January, it looked quite good. Even the agro products, agro movements were very good. Once the agro movements slowed down in the month of February-March and consumer durable and consumer demand also came down, the freight prices fell a bit in February-March. That is the reason where our customers found it a little difficult to pay the full payment and so there was some stress there. Going forward, now in the month of May there seems to be a bumper Rabi, and especially with the fruits season, festive season and wedding season coming along things should improve little in this first quarter. But the second quarter will again be purely dependent on monsoon. As far as our margins are concerned, we are moving into newer vehicle. We are basically a used vehicle lending company but we are seeing that there is some upward movement for a new vehicle. Even the customer/individual who would otherwise buy new vehicles, is buying a used vehicle which is between two-five years old rather than going for a new vehicle. If at all he has to invest on new vehicle,say a multi-axle vehicle then he has to pay around Rs 25 lakh, but he would get a used vehicle at Rs 12-15 lakh, so, he would prefer that in this kind of economic conditions. Especially, because of EMI that he has to pay would be almost half or maybe at least two-third of what he would have to pay on the new vehicle. In slowing economic condition, people prefer a used vehicle. That is one reason why we are moving into a newer vehicle. Since ticket size is big, our yields are lower there. We consciously put lower interest rate there so that customers are comfortable in moving upward and upgrading. There is a bias towards newer vehicles because of diesel price increase also because the technology in the last five-six years has changed and fuel efficiency of newer vehicles is much better. Customer is looking at upgrading but he is not able to afford a new vehicle. There is slow upgradation of customers towards newer vehicles. So yields are likely to be maintained at this level. We always give a broad range, between seven-eight percent as far as our yield is concerned. We try to have a better yield in asset and manage it. Our rural foray has given us some edge into higher yield products but still that ticket size are small to match the overall decrease in yield. 7.24 percent net interest margin (NIM) for the quarter was quite okay for us. Also read: Shriram Transport may hit Rs 850 in 2-3 months says Tulsian Q: Can you tell us a little bit about the topline because not just you but other companies in the same space also are reporting low double digit growth in the topline. What kind of an average run rate do you think you can maintain in terms of the net interest income (NII) growth for the rest of year? A: We have maintained NII growth of around 12-13 percent last year. On a consolidated basis it is 12.8 percent and on standalone basis it is around 11 percent. We should comfortably be able to maintain around 10-12 percent in the next year. Q: Your loan securitisation grew about 23 percent on a year on year basis. Can you tell us whether you expect the securitisation activity to improve in the quarters to come? A: We have maintained our securitisation at same level. We did around Rs 8,700 crore last year. We have done almost the same this year too mainly because of some kind of uncertainty in the first half. In the first six months, there is not much of securitization and whatever securitisation we have done is in the last quarter. In fact, we did maximum in the month of March. Next year, I am looking at more volume on securitisation. Since there is a huge demand from banks, there would be demand right from the first quarter itself for securitisation in this current financial year. Q: What would the 10-12 percent growth in NIIs imply in terms of disbursal growth that you hope to see in the course of the next few quarters? A: Disbursal would be quite good. Credit demand is there everywhere. In semi-urban rural market we see lot of credit demand, especially in the our niche segment of used vehicle. Our entire business model is based on relationship model which reflects in our ability to penetrate and our ability to build a team. The number of people who are on the field matters to us and ability to build relationship with customer helps us. We are totally focused on building team first and then growing. Last year we have added around 1,000 people on the field. This year again we are looking at adding another 1,000 people. If we are able to really translate this field force into a good team then probably we would be able to have a better penetration. In fact, the rural foray of opening 350 rural centres and the Automall activity, is giving us a lot of customer footfalls. There are around 500,000 customer database which they have built over the last 1.5-2 years. That is helping us in increasing our penetration. We should be able to really grow as far as lending and customer base is concerned.