Vehicle sales will be over 50% down this year, says Shriram Transport Finance MD & CEO

Commercial vehicle (CV) sales will be down more than 50 per cent in the current financial year vis-a-vis FY20, as there are enough vehicles to cater to the current level of activity in the economy, which is in the throes of the Covid-19 pandemic, says Umesh Revankar, MD & CEO, Shriram Transport Finance Company Ltd (STFC).

In FY20, CV sales were down 29 per cent year-on-year.

With the first three months of business lost due to the pandemic-related lockdown across the country, Revankar sees flat growth in STFC’s assets under management (AUM) comprising loans to commercial goods vehicles, passenger vehicles, and tractor & farm equipment, among others, in FY21. However, he expects a bumper growth in FY22.

In a telephonic interaction with BusinessLine , the vehicle finance business veteran, who has been with STFC for close to three decades, underscored that vehicle owners are entrepreneurs in their own right, who want to keep earning from the asset and repay the loan. They want to free the asset from hypothecation and are not really interested in moratorium. Edited excerpts from the interaction:

The current challenge, I feel, has more to do with the lockdown rather than Covid-19. While Covid-19 is a challenge as a pandemic, now awareness about it has gone up. So, each individual is doing his best to take care of himself.

India is full of entrepreneurs. We lend to customers who want to own commercial goods vehicles, passenger vehicles, tractors, etc. They are entrepreneurs in their own right. And as long as they are able to earn, they will pay. If they are not able to earn, then there is a challenge. So, in places where the lockdown has been lifted, it will be business as usual, unless the entrepreneur has been impacted personally or on the family front.

As per the feedback we have received, the percentage of our customers who have been impacted due to the pandemic is low. This is comforting for us. People are trying to get back to business as early as possible. Ultimately, the customer buying an asset wants to repay the loan and free the asset from hypothecation. That is his primary goal. He doesn’t want the loan to be extended.

In April, there was total lockdown — there was no movement, no earnings, and collection was a challenge. From May onwards, vehicles started plying and customers started paying part (loan) amount. In June, the collection was better and July is a little better than June. So, I think, by September business should become normal, going back to the pre-lockdown level.

Vehicle sales will definitely decline further this year. Compared to FY20, sales will be more than 50 per cent down this year as there are enough existing vehicles that can take the economy forward. For the current level of the economy, the current level of vehicles is more than sufficient. I don’t think the economy will immediately make a ‘V’ shaped recovery…Only by next April it (the economy) will start improving. So, new vehicle addition is not required. There is enough capacity.

New vehicle sales will not be indicative of the health of the transportation business. In this business, what is important is freight rate, fuel price and the margin the transporter is making.

Today, the freight rate has gone up by 15-20 per cent. The fuel price also has gone up by 10-12 per cent (this is not positive for the operator). But since the freight rate has gone up, the transporter is able to pass it on to the end customer. So, he is able to make his level of margin. He is not worse off than in the pre-lockdown time.

In the new vehicles segment, we are not growing at all. In the case of used vehicles, which is our forte, growth this year will be flat because we have lost three months. RTOs (regional transport offices) were not working and transfer of ownership was not happening…Hence, our AUM growth will be flat. Our AUM was at about ₹1.09-lakh crore (as of March-end 2020). So, we will maintain our AUM at the same level. But there will be de-growth in disbursements because of the impact of the first three months of the current FY. But next year there will be bumper growth.

We offered moratorium to 90 per cent of our eligible customers. But they started paying (instalments/interest). That means they are not availing the moratorium. In the month of May, 50 per cent of our customers paid (their dues). In the month of June, 70 per cent paid. While they would not have paid a full instalment, they would have made part-payment.

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