Chip shortage still a challenge for commercial vehicle players: STFC MD

The rise in fuel prices and the Ukraine crisis have not made any severe dent in the commercial vehicles business as yet, says Umesh Revankar, vice-chairman and managing director, Shriram Transport Finance (STFC). In an interaction with Shine Jacob, Revankar says the company is expecting a growth rate of 10 per cent in assets under management (AUM) in 2022-23. Edited excerpts:

What sort of impact are you seeing on commercial vehicles demand following the Ukraine crisis and the rise in fuel prices?

What I see is that demand per se has not come down. There is enough demand in the market. But some of it is getting postponed due to certain challenges. On the supply side, the issue of chip shortage continues to be a challenge. Thus, there is a supply-side constraint. The new scenario in demand is likely to continue as long as there is a supply-side shortage and availability remains a challenge. Geopolitical tensions have led to fluctuations in fuel prices but we have seen some cooling off from the highs. Hence, it is not an adverse situation right now. Only when prices go beyond previous all-time highs will I believe that fuel is going to be a major challenge.

What is your growth forecast and also with the Securities and Exchange Board of India (Sebi) nod for the merger (of Shriram City Union and Shriram Transport), what is your next step?

We are targeting an AUM growth of 10 per cent next year and we have a plan of action that will help us achieve a higher level of market share. In the last three years, we have grown at 5 per cent, 6 per cent and this year we should end up at 8 per cent. Our growth target remains contingent on the return to normalcy, but despite the uncertainty, we believe it will be better than the last two Covid years. On the credit cost estimation front, we expect to be at 2 per cent by next year-end. On other business verticals, affordable housing finance is likely to grow much faster, as the market scope is very high. For Shriram City, too, growth for two-wheelers and small and medium enterprise finance is showing a pick-up. On the merger front, we are moving from Sebi to National Company Law Tribunal now. It may take six months — around October-November. We are getting our engines ready for the merger by running pilots and we will be focussing on launching the products and services of each company. We are going from geography to geography. We are in the process of upskilling our staff and training them to be future-ready. When you look at the combined Shriram City Union and Shriram Transport, we expect the pace of growth for Shriram City Union products to be faster.

With the slew of fuel price hikes, are you seeing the importance of CNG vehicles?

There is already a switch from standard diesel to CNG or electric vehicles (EVs) in smaller vehicles. On heavy commercial vehicles, however, either CNG or EVs is not an option now. CNG is heavy to carry, and therefore, only small vehicles can use it. The same problem is faced with electric vehicles. The waiting time at any CNG outlet is also quite long. But people are actively shifting to CNG in city-bound vehicles. If you look at the last few months, Tata and Maruti have launched CNG variants in all their base models.

Is there a positive growth curve in terms of used vehicles too?

Chip shortages to make new vehicles and uncertainty on the economic front and now rising fuel prices are driving demand for used vehicles. The demand for used vehicles and their financing is quite robust. There is better demand for used vehicles now and their resale value has gone up by 25 per cent in the last one year.