mahindra finance: Expect festive season to lead a spur in demand says: Ramesh Iyer, VC & MD, Mahindra Finance
However, over the last two months, the company is seeing an improvement in disbursals as well as a reduction in NPAs. In July 2021, Mahindra Finance had a disbursement of approximately Rs 2400 crore with a collection efficiency of 95%. The efficiency improved to 97% last month August 2021, buoyed by the opening of the economy and improved mobility. The company witnessed a reduction in the NPA contracts during August as customer cash flows improved.
Shares of Mahindra Finance are on an uptake over the last month. Ramesh Iyer, VC & MD at Mahindra Finance is bullish on the second half of FY22, especially the festive season, anticipating a spur in demand and growth.
Excerpts from an interview….
What kind of growth do you expect during this fiscal?
Compared to previous years, the disbursement will be high. I see that volumes will pick up for auto loans, tractors, pre-owned vehicles. Disbursements will see a growth trajectory and NPAs [non-performing assets] will have a declining trajectory in FY22.
Is demand currently picking up?
Even during this pandemic, we didn’t see too many cancellations, but dealerships were closed. With the opening-up in June, we did see volumes pick up and it continued in July. Normally, July and August are not great months for vehicle purchase as people wait for the festival season. There could also be pent-up demand from the first quarter of the current financial year. We hope that there is no severe third wave and with a good monsoon, one could expect both September and October to do well, especially as infrastructure work gathers pace. With both of that happening, it could be a good buoyant story from a rural perspective.
How have collection and disbursement been in the last couple of months?
During the month of July 2021, the Company saw macro sentiments turning positive with normalcy returning. The disbursement during the month at ~ Rs. 2,400 Crore, more than doubled over a smaller base of July 2020. The collection efficiency further improved to ~95%, up from ~90% in June 2021. I think the trend seems to be holding up, the sentiments are pretty positive, people are back on the streets performing their activity in most parts and when we met sometime in July, I said this that as things normalise, we would see bounce back of collections and we are seeing that very clearly.
What are the changing dynamics in the Auto lending business?
Lending dynamics are evolving, from being the enabler we see need to become demand creator. See ‘phygital’ becoming a reality going forward. Lending will have to focus on consumer rather than what you are lending. Financiers have to move away from being product financiers to solution providers. Financing has to move past cyclical factors. Growth of the CV industry is inevitable as these are need based livelihood products.
Are you looking at new products or focus areas?
From our point of view, it’s important to capture three areas for further growth. We have created a very strong SME [small and medium-sized enterprises] vertical, where we are working with a large Mahindra ecosystem, and other OEM [original equipment manufacturer] ecosystem, where we will support suppliers for their capex or working capital requirements. We have chosen three industries to work with — auto, agriculture and engineering — where we think there is a lot of play for SME players. In the vehicle segment, pre-owned vehicles will be a good growth segment. As infrastructure opens up, tractor volumes will pick up.
Many OEMs in cars are also reaching out to rural markets with their launches and that can become a natural synergy for us to gain volume. We do believe that Vehicle Leasing in the next three years will become a prominent play. We have set up a Digital Finco for small-ticket consumer durable and personal loans. The platform is live but this is a testing year. While we have done some loans, you will see a lot of aggression in this business, next April onwards.
How confident are you of a reduction in NPA levels?
NPAs in the first quarter were purely due to a liquidity problem for customers, where they couldn’t earn enough and therefore, delayed payments. I would call them as a delay and not a default. We are confident that the customers who have delayed their instalments would definitely pay back.
Would there be need of prudent capital raising over the next one year?
Capital adequacy today is at 23% and tier-1 is 20%. After making these kinds of provisions for NPAs, we are sufficiently and adequately capitalized. We are really looking forward to and waiting for the turnaround in the market for growth to pick up and then we will see an aggressive growth in that market which will also help better recovery. This is a very unique market. As disruptions happen these customers do get impacted the fastest and the steepest, but as soon as things begin to change, they bounce back with the same speed. When growth returns, there will be improvement in collections because that is a direct reflection of the improvement in the cash flow.
What are your plans to strengthen the leadership bench at Mahindra Finance?
We have a new incumbent for a COO position soon. As we work very deep into the rural market, the next 3-4 years could really be critical with a good rural bounce back. We need to capitalize on all emerging opportunities in the rural market. We are broad basing our management team to be able to handle all our new initiatives, to really go deeper and make the rural market bigger for us.