“The third and fourth quarters are good seasons for business. So hopefully we should be able to cross this 20%,” says YS Chakravarti, MD & CEO, Shriram Finance.
Your AUMs have been consistently growing at 19% in the last two quarters. Given that typically second half is better than first half, do you think that you will be able to beat that 19% figure and is 20% thereabouts a fair assumption?
Yes, I think we should be able to do that. Should be able to beat it. As you said, the third and fourth quarters are good seasons for business. So hopefully we should be able to cross this 20%.
You know, you have been seeing growth across segments, right? Your PL, PVs, Gold, MSMEs but the CV segment, that has been a little bit soft. Tell me, what is your expectation about there? What kind of disbursements are you anticipating in the second half? And will the other segments keep firing up?
On the CV side, we have guided for around 12-13% growth in the beginning of the year and I think we are on target with that. So CV will grow in these two quarters, I think we will be looking at about 15% growth in the CV. But the rest of the segments, being the base is small, I think they will outpace the CV growth, particularly our MSME portfolio. And of course, one segment that is actually performing really well is the construction equipment.
Are not you diversifying too much because Shriram Transport Finance has always been a specialist in the second-hand CV market. You understand that business risk, both borrowing and lending. But now you are diversifying into a lot of other segments. Is not that saying that you are spreading yourself too thin?
I would not put it that way because after the merger, you also have teams that can handle MSME, Gold and two-wheeler, basically the merger with Shriram City Union Finance. So Shriram City Union Finance is also doing this business for the last 25-30 years. So we have teams that have expertise in running these verticals. So I do not think we are, I mean, even with all that, if you look at it, non-vehicle business is still only 20% of the portfolio. When you say second half will be better, I am assuming that you are referring to the non-CV business because it is not like that the CV business will become better in the second half of this year. I mean, this has been a natural uptrend throughout the year now?
Yes, non-CV business and the CV business we expect to do well in the fourth quarter. Typically, a lot of corporates and all acquire new stock in the fourth quarter. So we expect CV business also to do well in the fourth quarter.
So in light of that, what is the outlook when it comes to your net interest margins because they have expanded on a sequential basis, what is driving this improvement? And do you think they look sustainable at the current levels?
See, what is driving the net interest margin is two things. One is we had liquidity buffer earlier, which we have reduced it to three months now, three months of liabilities. So that about Rs 2000 crores came off.
So the negative carry has come down one. Second is the change, the mix of disbursement in the sense our SME has gone up which is like giving a slightly higher NIMs compared to the CV segment.
So it is a slight change in the product mix that has aided this. And as far as sustaining it is concerned, it is a third quarter, fourth quarter, because the demand and since we give offer schemes to customers, particularly in the two-wheeler segment, and of course, going forward, we are also as a new CV segment is slowly increasing. The NIMs could be anywhere between 8.5 to whatever 8.9. It could be in this range.
Can you grow at 20% the number which you shared with us without raising capital for next year?
Yes, we are at 21% capital adequacy. I think we should be comfortable. Probably next two years, we may not need capital.
Minimum capital you need to maintain because banks I know the number, NBFCs I do not know the number. I am not aware of it. Let me put it?
15%. Okay.
So if you are growing at 20%, and your capital adequacy is 21%, that means for at least three years, you do not need capital because you will plough back your profits back?
Exactly, definitely.
If that happens, then what happens to your return ratios, the return on equity should go higher, because if you are growing without diluting, then return on equity should go higher?
Correct, the ROE should trend up.
I am learning the tricks now how to analyse NBFC businesses. Okay, so then what happens when you are, what is the leverage ratio right now? I mean, in terms of the balance sheet leverage?
I think we are at about four and a half times roughly. Four-four and a half.
Is not that slightly high?
I think, no, probably see, if you look at it, we will be comfortable at about 5-5.5, around five we should be okay.
You have a leverage which is comfortable, you want to increase your leverage, you are talking about a 20% growth. But looking at how positive you are sounding and the festival season is around the corner that means the second half of this year, you should actually give us numbers which are north of 20%?
Possible, but see what I am looking at here is one.This 19% is aided by mostly my construction growth in passenger vehicles, construction equipment and MSME segment growth, where I would like to take a slightly lower targets on the passenger vehicle as well as the construction equipment. MSME will still grow at the same rate. So looking at all this, conservatively, I am putting it at 20%.
