It is said that demand for new commercial vehicles is an indicator of the way the economy is moving. By that yardstick, economic recovery is at least a few quarters away. The monsoon continues to play truant even after it has picked up pace since July. The projects that have been cleared are still to start adding back to the economy. In an interview with BusinessLine , Shriram Transport Finance Company’s Managing Director Umesh Revankar speaks about the outlook of his business and when we can expect a full-fledged economic turnaround. Edited excerpts:

How is the demand for new commercial vehicles? How is it evolving?

I think the demand for new commercial vehicles will only come from bulk industries, such as mining and infrastructure. I don’t think the normal haulage market will be able to absorb much of the increase in new commercial vehicles.

In the mining belt, you normally need new vehicles because of the gradient. Also, due to the nature of activity there, you need new, powerful and heavier vehicles. As soon as the activity picks up, the demand for large new commercial vehicles will increase.

As for new medium and small commercial vehicles, I believe there may not be an increase in demand but this year’s sales will more or less be at the same level as last year. Such vehicles are mostly used more for consumption-related activities. Last year, the demand for even these CVs had come down by 15 per cent. This year though, there might neither be a fall nor any increase.

At Shriram Transport, what is the ratio of used commercial vehicles to new commercial vehicles financed? How is it likely to change?

In our portfolio, the ratio of used CVs to new CVs is 88:12. I see that continuing for some time. The demand for used CVs is across the heavy, medium and light segments. For heavier vehicles, the demand is slightly less, because the resale values of these vehicles are a little low. However, overall, the demand for the used vehicles continues to remain robust.

In the used CV segment, how many vehicles did you finance last year? How many do you propose to finance this year?

We lent around ₹2,000-2,500 crore a month. We should be able to manage the same levels this year too. In the second half, new commercial vehicle financing will go up a little. Some industries will go for newer vehicles.

In the second half, our assets under management (AUM) could grow 10-12 per cent while in the first half it will remain flat.

What are the recovery challenges that your company is facing and how do you plan to mitigate it?

Simple arithmetic will tell you that earnings for truck operators have come down because diesel prices have gone up by 70 per cent over five years and freight rates are up just five per cent. Since there was excess capacity of trucks in the goods segment, they could not pass on the increased costs to the passengers and margins have come down. At the same time, inflation has gone up. So the truck operators are squeezed from both sides.

We are trying to collect in parts. We do not insist on full instalments every time. So, though there is distress, we keep collecting slowly and make sure we engage with them (the borrowers). From last October to April this year, it was a very difficult period for the truckers.

We added some 1,500 people last year, most of them to our field staff. Out of our staff strength of 17,000, about 11,000 are field staff.

How are your rural and urban portfolios performing?

About 15-20 per cent of our business is urban (metro cities) and the rest is semi-urban and rural. We have consistently felt that the semi-urban and rural markets are behaving much better than the urban market. That has been the fact for the last so many years.

Nothing has really changed…only our convictions are becoming much stronger that it is the semi-urban and rural markets that are better for us, especially when we do small ticket retail lending. Access to the customer becomes much easier to manage compared to urban centres where the ticket sizes are bigger, the customer class is a little different and many of the customers will be migrated customers. So, that becomes a little bit of a challenge in the big urban centres.

Do you think the rural portfolio will continue to do well despite the somewhat erratic monsoon this year? What could be the drivers of change?

If you look at the last 15 days, the rain deficiency has already come down, from around 46 per cent in the beginning of July to around less than a fourth now. Monsoons have been good except for in the central part of Madhya Pradesh and Maharashtra. Interior areas in these parts have lesser rainfall.

So, some reports say that rice sowing is a little less. That is not really going to hurt the rural centres much. There will be some delay. Farmers will shift to other crops such as cereals, pulses or oilseeds. So, this should not affect farmers’ income much, though there will definitely be a delay of a month or two. But that’s not going to disturb them much.

Last year, we had good monsoons and a lot of the farmers would have had two-three crops. Normally that does not happen. I feel rural areas will be less impacted this year. If the rainfall deficit ends at less than 20 per cent, then we should be having a reasonably good rural income.

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