More than a year has passed since the three-way merger of Shriram City Union Finance, Shriram Capital and Shriram Transport Finance, but the integration is still in progress. YS Chakravarti, MD and CEO, explains: business line How do you expect your financial situation to improve in the coming months? Edited excerpts from the interview:
What is the status of integration after the merger?
It's a work in progress. It will take a little more time to complete a fully integrated unit. In states such as Tamil Nadu and Andhra Pradesh, where both teams (Shriram City Union and Shriram Transport Finance) have a large volume of business, branches have been consolidated or one person can handle everything. We cannot be responsible for the products. We are looking to introduce other products into these branches and staff them with training in these products. [appointees] or from previous SCUF branches. It will probably take another year to have all the products in every branch.
We have introduced Gold Loans to 600 stores that handle commercial vehicle loans. To date, the company has hired, trained and placed nearly 2,000 people. This is an exercise that we review regularly. Proof that it's working is that it grew 20 percent in the first nine months of fiscal 2024, compared to an estimated 14-15 percent at the time of the merger. It is expected to end FY24 with a growth rate of 20% and grow at 15-18% in the next two years.
What about synergies in your auto loan portfolio?
The product mix is approximately 30% new cars and 70% used cars.Both are growing, but in the new PV [personal vehicle] The loan segment is mostly entry-level vehicles as our customer segment consists of upgrades from two-wheelers or CVs. [commercial vehicle] Owner buying a car. Our reach expanded almost overnight from 2,000 branches to 3,000 branches, allowing us to offer our PV loan products to our customers.resume loan This segment is growing at around 13% and the LCV is [light CV] Loan growth is slow. The heavy vehicle loan sector is growing.
What is your ideal portfolio composition?
MSME [micro, small and medium enterprises] Loans increased by 30%, motorcycle loans by 21% and gold loans by about 30%. In personal loans, 99% are directed to existing customers, and we have approximately 2.3 million current customers, of whom 50% have paid off his 60-70% of the loan term. Another 1 million loan contracts expired last year. Ideally, the PV should be between 25 and 26 percent and the CV between 35 and 40 percent. We limit construction and agricultural equipment to 6-7% of our portfolio, and personal loans to 8%. However, this product is short-lived, so it will take at least three to four years to reach 8%. The 65% growth rate for Q3FY24 seems high due to the small base, but the growth rate could be 20-25%.
Where do you think your price competitiveness lies?
With new and used cars, you want to finance your used car. At the mixed level, banks are lending at 9-10%, so the percentage of new cars will decrease, but it cannot be done. We're happy to finance our existing customers, but we don't want new cars to be a big part of the total. The new medium and large CVs are priced above Rs 4 million. Drivers who want to become owners can never afford a new vehicle, and it is primarily fleet owners who are transitioning to new vehicles. We don't want to compete there as we already have funding from other banks and NBFCs. [non-banking financial companies] At lower rates. We don't want to lend at such profit margins or increase profits at the expense of profitability. That is our strength, so we will continue to sell used cars.
High operating costs and pressure on margins are limiting profitability. Amid talk of the stock being included in the Nifty 50 index, what will be the return guidance?
Operating profit of 25-27% includes a quarterly hit of Rs 100 crore from merger-related intangibles, which should be absorbed in two to three quarters. Last year, we hired approximately 13,000 people, which increased our labor costs. 9 months NIM [net interest margin] It improved to 8.77% in FY2024 from 8.31% a year ago and should remain at this level. Cost of funds must remain stable. Changes in portfolio composition due to increase in personal and MSME loans are contributing to our NIM holdings. In addition, liquidity on the books is approximately three months' worth of negative carry. This is decreasing and should help improve margins and return rates.egg [return on equity] Currently 15%, should improve to 16-16.5% RoA [return on assets] 3.11-3.50%.
