L&T Finance, the non-banking finance arm of Larsen &Toubro, recently announced its entry into the mutual fund space by acquiring DBS Cholamandalam Asset Management. Senior Vice-President N Sivaraman, who heads L&T Finance, speaks to Sudeep Jain about the firm’s core asset financing business and how he plans to take the recently acquired AMC forward. Excerpts:
How has business been for you over the past few months?
The overall disbursement in the first half has grown by about 7 per cent and our profit after tax for the first half grew 30 per cent on a year-on-year basis. In fact, the first half of the current year was much better than the second half of last year. Our construction equipment finance business, which accounts for 40-45 per cent of our loan book, saw disbursements grow 15 per cent on a half-on-half basis.
Within construction finance, where are you seeing the demand coming from?
There has been growth in demand for medium-sized assets. For small assets, which are used a lot in the real estate sector, demand has not picked up since builders are still running down their inventories. In sectors like manufacturing and infrastructure, demand has picked up from May onwards.
You recently acquired DBS Chola Mutual Fund. Given that this space is crowded, why did you decide to enter it?
The biggest investment in the financial services business is in acquiring customers. Once you have customers, you want to get the best out of them. And even as we diversify our source of funds to include retail investors, we have another set of customer bases to exploit. So, this was a natural extension of our business for us.
What will be the USP of your asset management business?
In this business, the most important thing after performance is distribution. We will offer our existing distribution reach to our clients.
Urban customers are the largest investors in mutual funds and we cannot ignore them. But we have a strong semi-urban and rural presence and we will definitely exploit it.
Using L&T’s presence in certain areas, we hope to create certain niche retail products.
When are you getting into non-life insurance and will you partner someone or go it alone?
We are actively considering adding non-life insurance to our suite of services. We plan to start out on our own and to enter this business as soon as possible, subject to necessary approvals.
You have been around for 15 years now, but are still unlisted. Are you considering a listing?
We have been around since 1994, but our business has grown substantially in the past few years. With growth comes capital requirement. The advantages of listing are that it will enable us to fulfill our capital requirement and allow the promoter to realise value. L&T will take a call at an appropriate time.
What is your liabilities mix and what trends are you seeing in cost of funds?
About 40-45 per cent of our funding comes from bank term loans, while another 40-45 per cent comes from mutual funds. Retail bonds account for the rest.
Our cost of funds has been steadily improving and quite stable over the past few months, since liquidity is abundant. Going forward, we expect our cost of funds to remain benign for at least the rest of the financial year.
How is your micro-finance business doing?
It is doing quite well. We have 400,000 borrowers and have disbursed loans worth Rs 300 crore. We are present in Andhra Pradesh, Karnataka, Tamil Nadu and Maharashtra and hope to extend to other regions.
Are you planning to enter any new lines of business?
Right now, we are focused on consolidating our existing businesses.
