 "Creating a bigger reach very important in MSMEs: Shriram Finance exec VC")
Shriram Finance Ltd, the largest retail NBFC in India, is planning to increase its presence in the micro small and medium enterprises segment, while strengthening the current foothold in commercial vehicles and passenger vehicles. Umesh Revankar, Executive Vice Chairman of Shriram Finance expects the company’s assets under management to grow by 15 per cent in FY 24. He talks to Shine Jacob about the NBFC’s future growth roadmap and talks to sell stake in housing finance arm.
During the fourth quarter, your net profit increased by 18 per cent and net interest income too was seen up. What were the major drivers of growth during the quarter?
The comparison will not be appropriate, mainly because it is two different sets of scenarios. Last year, the numbers were standalone and the previous quarter was first results, post the integration. If this particular quarter we look at, we had Rs 303 crore additional merger charges for integration. That is one of the reasons the numbers looked lower.
Overall the disbursement growth and AUM growth has been quite good. If you look at the AUM growth for the year, it was 16 per cent up. Disbursement for last quarter was Rs 31,054 crore and the AUM growth on a quarterly basis was 4,61 per cent. These are all positive and net interest margins we were able to maintain at 8.55 per cent against 8.52 per cent in the previous quarter. As compared to the last quarter, profit numbers look less because of the additional charges. Otherwise, volume and disbursement growth were quite healthy.
All the segments that we are in, whether it is commercial vehicles, passenger vehicles, construction equipment, gold, two-wheeler and MSME, everywhere we are seeing good growth, both quarter-on-quarter and year-on-year.
Is it true that Shriram Finance is looking to sell a 15 per cent stake in its housing finance subsidiary Shriram Housing Finance?
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We have been talking to various interested parties, but there is no fixed plan to sell 15 per cent at any point of time.
Your total assets under management stood at Rs 1.86 trillion by the end of March 31, compared to Rs 1.6 trillion during the same period last financial year. What was the reason for this increase and what is your outlook for FY24?
Merger was definitely one of the reasons. We have a larger network now that really helps in scaling up, especially since we are present in the rural and semi-urban area. You need legwork and reach to increase the lending. The merger has helped us in having that additional network and created the ability to do additional products in each of these branches. I should say that integration is almost complete as far as operation is concerned.
Our aim is to grow in terms of AUM by 15 per cent in FY24. What we are focusing on is improving our bottom-line. So, bottom-line growth will be much higher than the top line growth.
Still commercial vehicles contribute 50 per cent and passenger vehicles around 18 per cent of your AUM. What is your strategy with both these segments?
As far as the vehicle is concerned, the reach is very important and that we have now created because of the merger. In used vehicles, it is important to know which geography is growing. The growth will be coming from both urban and rural markets. In urban markets because the real estate and infrastructure spending is high.
The demand is coming from government spend on infrastructure. Increase of demand in steel and movement of building material are all these things. All the segments are growing positively, whether two-wheeler and tractors in the rural belt and passenger vehicle and commercial vehicle in the urban belt. Since the infrastructure investment is high, demand is also high. Since the new vehicle sales have grown this year, we expect the used vehicle demand also to pick up.
MSMEs are one of your key focus areas. However, your strength is basically the South and now you are looking at the North as well. How are you planning this?
Creating a bigger reach is very important in MSMEs. We were basically focusing on the southern markets. Shriram City Union had a larger presence in the South. Today with Shriram Transport branch being available, many of the staff are well experienced into these geographies. Geographical knowledge is more important in MSME lending and that helps us in doing more business.
During the fourth quarter, in the segment-wise AUM breakup, the share of CVs, construction equipment, farm equipment, MSMEs and Gold came down. What was the reason for this?
Passenger vehicles have grown faster and its demand is quite strong in rural areas. Maybe it is a post-Covid phenomena and also people having two-wheelers are upgrading to four-wheelers. It is not that other portfolios have gone down, proportions might have gone down and growth rate might be a bit less. Otherwise, we have seen growth in all the sectors.
You had plans to raise $2,44 billion during the current financial year. What is the status of that and what is your take on the sharp increase in cost of funds?
Raising of capital or debt is an ongoing process. It is not a one-off raising programme. I have comments only on $2,44 billion. Incrementally, the cost of funds has grown by around 9 basis points for us during the last quarter. I believe that since RBI has put a pause, there will not be further increase in cost.