Increased focus on construction equipment, tractor financing has paid dividends, says Sundaram Fin MD

Having anticipated ‘muted' growth in the medium and heavy commercial vehicle (MHCV) segment in May 2011, Sundaram Finance turned its focus more on financing vehicles in other sectors such as construction equipment vehicles and tractors.

This strategy has worked well for the Chennai-based finance company.

“In May 2011 we said that the automotive industry, coming off two successive years of high growth, is exhibiting clear signs of slowing down. That's what is happening now,” said Mr T.T. Srinivasaraghavan, Managing Director, Sundaram Finance.

“We positioned ourselves to meet the challenge and increased the focus on emerging sectors such as construction equipment and tractors. This paid us the dividend,” he said.

Business component

For Sundaram Finance, commercial vehicle used to be dominant component of business but not any more. It used to contribute 55-60 per cent of total volume while 30 per cent was cars and 15 per cent was others, including construction equipment and tractors.

Today, the commercial vehicle segment contributes around 50 per cent. Cars remain at 30 per cent, while contribution from other segments is increasing significantly, he said.

Construction equipment business for Sudaram Finance contributes nearly Rs 700 crore of revenue. If the ‘tipper' is included, then this segment will be over Rs 1,000 crore. ‘Absence of hands and legs to work on the field will drive the demand for construction equipment,” he said.

For the first nine months of the current financial year, volume of MHCVs was 2.44 lakh units while for LCVs it was 3.27 lakh. This is a complete reversal in trend in the last two years with LCVs overtaking MHCVs. It is projected that in the next five years for every three LCVs sold only one MCHV will be sold in the market. The future growth in terms of volume is clearly from small vehicles, he said.

Mr Srinivasaraghavan said that the life of a truck is getting longer, what with roads getting better all the time and vehicle technology improving.

Customer focus

On the company's better financial performance during the third quarter (the company reported a 28 per cent increase in net profit to Rs 91 crore on revenue of Rs 444 crore), he said it was due a steady growth in areas that the company understands and operates. Staying closer to customers allowed us to sense the emerging risks and opportunities,” he said.

“In this business you need to be consistent and have a steady growth. You get in to trouble if you get greedy. A growth of 50 per cent year-on-year is not realistic. You have to take huge risk,” he said.

Recoveries are good as cash flow for vehicle operators was by and large okay. There was no major delay in recoveries as freight rates have not dropped, he said.

> raja@thehindu.co.in

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