Mahindra & Mahindra Financial Services Limited (MMFIN) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Mahindra Finance Q4 and FY '20 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note, that this conference is being recorded. I now hand the conference over to Mr. Abhijit Tibrewal. Thank you, and over to you, sir.

Thanks, Steven. Good evening, everyone. I take great pleasure in having with us here today, the senior leadership team of Mahindra Finance. We have with us, Mr. Ramesh Iyer, Vice Chairman and Managing Director; Mr. V. Ravi, Executive Director and CFO; Mr. Rajnish Agarwal, EVP, Operations; Mr. Dinesh Prajapati, SVP, Treasury and Corporate Affairs; and Mr. Rajesh Vasudevan, SVP accounts. They are here to discuss the Q, the company's performance in Q4 FY '20 and the business outlook going forward. We will have a Q&A session post this discussion. Let me now hand the floor over to our honored guest from Mahindra Finance. Over to you, Mr. Iyer, to share your opening remarks on the results.

Hello. Good evening, everyone. Firstly, sincere apologies for delaying this call from -- we were supposed to be having it 5:15. We are 1 hour behind, mainly caused by our inability to transfer the results to the exchanges, and that got it a little delayed. Nevertheless, my sincere apologies, and thank you very much for joining this call. I would not really go into line-the-line item numbers. That must be already with you. And through the Q&A, we can actually handle it. But I would more like to narrate on where we are, what we see on the ground and where do we see going from here. So first thing is first, I think, it's now more than a month that the lockout is and very happy to report that around 500 of our branches are already up and working, and that they have been opened in the green and orange zones of the country. And as I said, they are up and working, and we have started seeing walk-in, both for asking for new loans as well as for repayment of installments. So that gives us really a lot of confidence that things are beginning to get to some normalcy. And over a period of time, for sure, it will settle down and things will begin to happen. We do very strongly think that, given the good harvest in this season, most of the states, the farm cash flow is holding up. And we are already witnessing it through collections during even these period. As we speak, if we were to look at what percentage of our consumers actually opted for the moratorium offer, I think about 75-plus percentage did take the moratorium, but the ones who did not, largely belong to the farming community, where they felt that their cash flows will improve, and they would be able to pay. The real question was, how will they come and pay or how will we go and collect? And therefore, when we gave them options of depositing in the banks or digital transfers, et cetera, some of them have taken that option. And April did witness a decent collection, and May, 15 days of collection has already equal to or slightly surpassed even what we collected in April. So to that extent, we feel extremely confident and happy that consumers are coming back to normal, even on that front. We've said this before and we continue to hold on, even before the COVID impact, we had said, any normalcy to business volumes, we could see only post October, that is the festival season. And it continues to appear that it would only commence around that time, because the BS-IV or BS-VI on the vehicle front, is still getting sorted out, and therefore, people can decide to buy new vehicles. The tractor side is already showing traction. We believe that the pre-owned vehicle segment will definitely be the ones which will show better traction during this period. People do want to acquire a pre-owned vehicle, rather than investing on a new vehicle. So that could become a turnaround story or could become a story, which will emerge much faster. So we think that, while things will begin to happen, but by the time we can start -- talk of some normalcy in terms of volumes, et cetera, we would clearly see that it will be post October, where we would start to see this. These are times where we believe our priorities are to ensure that the employees do come back with confidence to work and that they don't have any sentiment issue or any fear issue, before they return to work. So there's a lot of employee engagement program in terms of our communication program, et cetera. During this period, we have definitely focused on areas of where we could really control and bring down costs. And in one of our earlier calls, I had mentioned about this being our area of focus. We have identified about 8 or 9 focused areas where we could bring down cost, and some of them are bringing down the cost of our branch rent. We are in negotiations with various landlords, and we do get very, very positive signals from them of agreeing to bring down the rents by 20%, 25% or so. So that's one very clear focus area. I think we are looking at all the outsourced contract that we have for either security or for the BPOs, et cetera and we do believe there are very clear opportunities for we may renegotiating prices around all of that. So we are confident that with all our efforts towards cost reduction programs over a period of time, we will see the benefit of it in this year, as we grow through the year and reach the year-end. We would see a decent benefit coming out of it. If I have to just put a number around it, we believe that a 40, 50 basis point savings with all efforts put in place on a full year basis is definitely possible. So that's going to be one very strong focused area. As far as the overall collections are concerned, as I said, while the farm side has started to respond positively for repayment, et cetera, I think the commercial vehicle side, the aggregator taxi model, which are driver dependent, mainly the businesses which are driver dependent, where the drivers have gone back as migrants to their respective home towns, could take a little longer to bounce back, as an earning potential. Even if things were to normalize, let's say, the lockout is to be lifted by end May or so, by the time people come back to work and put back their vehicle on earnings and they start to earn and start to repay, could take another quarter or so. So we will have to live through this pain point for another quarter at least before we can say, everything is returned back to normal. It is in this direction that in the accounts for March '20, we have taken a forward-looking extra provision based on what we see is likely to be in the market. We do believe that we have taken an aggressive stand to make that provision, and we could benefit out of it as things start to change. And we could get the reversal benefit as we go along. So far, is not heard nor do we believed that the customers may want to surrender their assets and things like that. I don't think that's going to be the story, because most of these assets are earning assets, they are life giver products for many of our consumers. We would see definite delay, but we don't see them at default or a surrender arising out of that. So if I have to therefore, conclude from where the business is going or where the collections would be, I think given a quarter or 2, things should look much, much more normal. And as we've taken some aggressive stand in terms of extra provisioning, et cetera, should benefit us substantially in that direction. We don't see too much of competition arising during this time, because if you don't have your physical branches and things like that in those areas, it's not easy for someone to now come and make a beginning for a business. And therefore, we think the existing players will be benefited from the volumes, while the volumes overall are definitely likely to come down. I think the year '20 will be a year, which cannot be compared to the past and made a reference of, whether it's a growth or a degrowth. I think year '20 will have to be analyzed from a point of view of, how the business is getting back to normalcy and what are the fundamentals of the business which works in favor and what are the changes that we are willing to bring in to make it work in favor. So the digital movement in terms of giving opportunities to the consumer to be able to digitally repay or to even digitally demand loans, which we can analyze, assess and provide them, will definitely be one of the focused areas from where you will see change from our side. We also very strongly think, given a very large customer base and a very local employees, think, do, has a very local knowledge, will be an added advantage during this period, because our existing customers may want short-term loans, which we had launched as a program, even 6 months, 8 months back, for our existing customer with excellent track record. And I think that is something that will help us grow during this period, but we will be very selective on who we want to provide such product, but do -- we do see that as an opportunity. I think the important area to really focus around these clients is also going to be the liability side in terms of how well, how prepared are we from the liability side. And I want to confirm that, even if this situation was to continue the same way for next 6 months, we are very, very comfortable to make a statement that, we have adequate arrangements for liquidity and we would be able to meet all our liabilities, including interest payments on time. We would be able to meet all our fixed costs on time. We do not see a problem on the cash flow front, even if you were to assume that the current situation was to get over extended for a longer period of time. I think these are times where one has to have absolute control over what's happening, but more importantly, one has to be very clear and must have a very high ethical and governance practices. These are not time to take any shortcuts on anything. I think we would not come under on any of those pressures. I think we will ensure that what we do is absolutely transparent from a consumer perspective. And we do believe that will put us ahead of many in terms of our relationships with OEMs, in terms of our relationships with dealership community as well as with our existing customer base. When we were talking, of course, the other area of cost that we would also look at is on the employee front. We do not envisage a reduction of employee or a salary cut as an option to look at. But recasting the salary and changing the mix between fixed and variable is one option that we are very strongly working on. And we do believe that, that would help the company save substantial amounts, if the overall performance was to suffer due to market conditions, then the company may not have to incur that kind of a cost. So the larger theme that I'm trying to drive clearly is, to bring appropriate controls and to ensure that the cost is kept well under control, liquidity is appropriately focused and therefore, adequate liquidity is made available to meet all liabilities, including fixed cost requirements, to focus on the business growth in areas of opportunity, where we think the customer needs vehicle, which is a livelihood and an earning product for them. And lastly, to ensure that in areas where there are earning commencing to happen, where the customers are already beginning to earn that we ensure our installments are well collected and controlled. And given, all of that and with the stance that we have taken to have higher provision already made, we who believe that the year '20 would see further improvement to our asset quality, a better coverage of our NPA ratios and a better management of our collateral. With all of this theme, we would think year '20 would be an year of, honestly, correction and investment, it'd be a year of revisiting the processes and reaching controls on costs that we are envisaging, and it would end up as a year, where we would have built substantial platform to be able to grow from there into the new era that will open up post this situation, which we believe, may commence post festival. I think I would stop at that as my initial comments, and we are open to questions, which we would take on a turn-by-turn basis.

[Operator Instructions] The first question is from the line of Mahrukh Adajania from Elara Capital.

Sir, what would be your total liquidity on the balance sheet right now? And how much would you have raised in the last 2 months? Also, what would be your repayments till September and till December?

Dinesh, do you want to take this question quickly with data?

Yes. We have shared in our presentation also. We have approximately INR 4,500 crores of liquid investment available as of today. And we would have raised in last couple of months more than INR 3,000 crores through various modes in the form of term loan, LCD securitization all put together. We have given even calendarization of maturities, which are coming up in the May up to September, if you can refer to our presentation.

Sure. And up to December, would you have, the amount roughly?

I'll have to go back and refer -- check it, but broadly -- roughly every month, there will be a maturity of close to INR 1,000 crores.

Dinesh, you can share it offline, with all the investors later.

Sure. Sure.

And how much would you have raised from the TLTRO, the INR 2,000 crores, right?

No. As of -- from April to current date, we have raised around INR 675 crores.

Sorry, INR 675 crores. Okay. And the rest is all term loans, and could you share any incremental rates on borrowing or the marginal cost of borrowing, just now versus pre-COVID?

So last, the bonds which we have raised on the TLTRO are in the range of 7.5 -- 7.65%

Okay. And the term loans?

Term loans are MCLR-linked. So whatever is the present MCLR.

The next question is from the line of Ritika Dua from Elara Capital.

So firstly, on the moratorium bit -- I'm sorry, I missed a bit of your opening remarks. So what is the percentage of your borrowers who have asked the moratorium? And the second question is, some understanding on the provisioning that you have taken, which you have shared that, we think is obviously quite conservative in nature, maybe some understanding on what went behind the number?

So in terms of percentage of customers who have opted for moratorium would be around, I said, 75-odd percent. And as I also quantified it by saying that, largely, the farming community as well as personal use professionals like the local teachers, doctors and those kind of people who have taken. Who have a fixed income, are the ones who have not opted for the moratorium. In -- as far as the logic or the reasoning behind these kind of provisioning, I think we have looked at it from 3 or 4 angles. I think, one, is, we looked at from various segments, which are the segments of customers who may take a little longer in order to bounce back to normalcy, given the current condition. That's one. So as I said, commercial vehicle or the taxi aggregator are the kind of segments we believe could take a little longer, for that matter. Anyone who is in the passenger carrying business, initially, people would resist to travel in those kind of mode with more people in. So therefore, the volumes of business could come down, or number of passengers traveling could come down. So we looked at that as one approach. The second that we have looked at as an approach is, given that during this 1-year period, we would more like to partner the customers and would not resort to any kind of repossessions, et cetera. That would, therefore, could mean going forward, there could be some drop in the vehicle, price can happen, at a later stage if you decide to take back from vehicle. So we factored in some possibility arising out of that. The third we have looked at is from a zone. Whichever customers are in red zones and are in such kind of applications, we have even made a little more aggressive provisioning, because the red zone, our belief, is would take definitely little more longer than obviously the green and orange. So putting all of this together, we have kind of felt, there is a need for the percentage of ECL to move up from 30 to 35, and in some cases, going up to 40, there in red Zone, et cetera. And that has led us to this number, which we have made a provision for.

Sir, just one thing, on the red zone, sir, any number there that, what percentage of our branches or what percentage of customers are there today in the red zone?

28% to 30% of our customer or branch or assets, whatever you want to call it, around 28%, 30% would be in red zone. But it's, again, important to understand red zone does not mean that everything is not going to happen there, right? So it will just take a month more than maybe or a 2-month more than a green zone, possibly. So -- but yes, it's about 28% or 30% of our customers would be in that location.

Okay. And does the 75% number which you mentioned was this before as valued?

Sorry?

The 75% number that you say in terms of the moratorium, that was like...

Both in terms of value and number, more or less, they would be same. Maybe 2%, 3% here and there.

The next question is from the line of Karthik Chellappa from Buena Vista Fund Management.

The INR 560 crore of provision that is taken for COVID, how will that split, geographically? I mean which are the states that are contributing to the majority of this provision?

I think east would have contributed little less because the east has got a lot of green zones. But as otherwise, I would think that north, west and central would almost take away 60%, 70% of this maybe. But it's more than geography, as I said, we have looked at the Red zone as one approach. We have looked at various applications, which are likely to suffer as the second approach. And our partnership approach of not wanting to take away the assets, but rather give time to the consumer to earn and repay are the 3 approach -- it would not -- we have not really looked at state to say, but definitely, once you look at red zone, the speed does come into play automatically. In that context, I would think east would be the lowest and adding south, west, central, north could almost take away equal share, possibly.

And sir, is this a case where you have identified a certain stock of loans and has taken 40%, 50% coverage straightaway. So that's the confidence that gives you, that's in the second half of year I think, as far as this provision should be adequate? Or is it just like a substandard provision level on a larger stock option?

No. No. As I said, no, we have applied the 3 yardsticks, right? And if those assumptions were to kind of start to improve, then the benefit would flow to us. Now whether the assumption should turn out possibly in 3 months time, 4 months, 6 months time, is something we will have to wait and see how things open up. But clearly, we do believe that, like, for example, we have taken in green zone, let's say, the transport application or people moment application, we believe that, that could turn around much faster than in a red zone.

Okay. Great. And sir, at this point, you have not taken any moratorium from any of the bank -- sir, you've not availed up any moratorium from any of...

No, we have not taken. We have not taken.

Okay. And the commentary on tractors, I think was -- at the margin was positive. In terms of your other asset classes, whether it is utility vehicles, cars or fleets, which do you think will be the earliest to recover and which will be the last. Probably, I will think CV is the last, but...

CV could be the last, but even in CV, LCV and single truck, owner driven operators will bounce back faster than the fleet operator, because fleet operator problem is also going to be of the driver's availability. So therefore, that could take longer. I think the taxi operations -- the aggregator taxi operations, because they are very semi/urban, urban-focused, could take little longer. But the faster bouncing ones like, tractor is first, maybe, followed by pickup, followed by 3-wheeler, goods transport, the small packet transporters, I think these kind of segments will bounce back faster. So we shouldn't forget that in rural India, the mode of transportation for people still remains in the hands of private operators. There are not too many public transport system. Typically, what would happen is, number of people now traveling by those vehicles actually will go down. And that could, honestly speaking, can become an opportunity for more vehicles to be sold. And since that could possibly be a temporary opportunity, people may look at second-hand vehicle for that purpose, rather than a new vehicle for that purpose. Vehicle demand is likely to go up. That's for sure.

Got it. Very clear. Sir, just one more follow-up...

Mr. Chellappa? Sir, sorry to interrupt, sir, but for any follow-up, request you to the rejoin the queue, please. [Operator Instructions] The next question is from the line of Umang Shah from HSBC Securities.

I just wanted to understand. So the reconciliation between high reg homes and India AS which was given in the presentation, there appears to be a shortfall in the Stage 3 provisions. But obviously, there are excess provisions in Stage 1 and Stage 2. So how should we read into it? I mean do we need to kind of build a gap on the Stage 3 provisions in coming quarters?

No. So stage 3 is based on the expected credit loss. So really one doesn't have to fill it up, right? We have taken some extra provision in Stage 3, assuming or estimating that the expected loss could slightly go up in the current situation, and which is what I was explaining that, if situations were to improve faster, we could even get the benefit of reversal over a period of time. So those really are not comparison. I mean when RBI wanted us to compare both, it is to ensure -- because earlier, there was no Stage 1, Stage 2 per se, if you really look at it. So therefore, they wanted to ensure that the overall provisions should not fall short. And if they were to fall short, they wanted us to make an extra provision, if need be. So in our case, since we're already carrying provision higher than what we would have otherwise carried under the earlier regime, that need has not arriving there.

Okay. All right. And just one question on operating costs. Given that there is a very sharp fall in OpEx this quarter, are there any cost deferments, which has happened?

No. No. There is no cost deferment whatsoever. As I said, on the people front, clearly, if there are incentive programs, if the performance has not been there in March or in February, whichever month, then those incentives are not required to be paid, either to dealer or to employees or anybody for that matter. Similarly, as I said, we have been in the focus as to reduce cost for the last 6 months. I wouldn't say that everything is already put to practice, but the benefits have started flowing in for sure. So that's the second one, right? And the third one, I think we explained even I think in the last call or maybe something before that, that there was this fixed cost coming out of gratuity or whatever, which -- because of the recasting of the compensation which was done. When restated, I think there is some benefit arising out of that. But there is absolutely nothing which have been deferred, which will come and hit us in the next 2 quarters or something. Nothing of that kind.

The next question is from the line of Anubhav Agrawal from ICICI Bank.

I wanted to know what is the current collection efficiency across different products? And how it has changed from the pre-COVID situation to the current situation?

No. So I don't have it by product, but I can tell you that in April, our efficiency was something like a 15%, 16% as against, we thought it would be 0 virtually. So there are people who opted to pay through ACH and direct deposit, et cetera. And my understanding is, out of that, decent percentage would come from people who earn out of the farm cash flow. So for us, May is concerned, in the 15 days, we have already reached the collection that we had in April. So we would expect that May would actually be almost double of April, which is a excellent signal from the marketplace. There, again, the collections would largely come from farm cash flows, mainly in states like MP, UP, et cetera.

The next question is from the line of from Nischint Kotak.

I just wanted to understand the GNPA has typically comes down for you between the third and the fourth quarter, but somehow it has not happened this year. I mean, should we really think about it?

No. So very honestly, our expectation was that, we would close GNPA exactly like last year. But unfortunately, the major part of March was defeated. And we were actually cruising very, very well towards the same and suddenly comes all of these events, and it just gets stuck. My very strong belief is that, once we are out of this situation, you could see a sharp fall in that happening as the market conditions normalizes. So it is -- I would think, something that we could have done in March, has got, by force, postponed. Because in March, what happens is, manier times, even reposition release is very high, because we do bring back the assets, customer comes and settles and takes it back. So none of those activity could actually be performed in March. And all of us know that March for us, even within the fourth quarter, March is an extremely large month. So I would think, we would have lost, partly, if not more, 1.5% correction possibility of the gross NPA for sure.

And that may be the similar trend in housing business as well?

Oh, yes. Housing, again, even if the customer had the money, right, he would like to store not knowing what's the next in future. So there also, you will see a similar correction happening as things open up. But unfortunately, this happened in March. Therefore, we had to sail through March, and if we were to get into the situation in April, we would have been talking actually of a very different number.

Sure. And just one thing, Stage 3 coverage at 31%. So this is including the INR 500 crores?

Yes, yes. I mean, out of INR 500 crore, maybe INR 400-odd crore would have gone into Stage 3. Rajesh, is that right?

Yes. INR 474 crores. Around INR 270 crores.

Yes. So out INR 574 crores, INR 474 crores would have gone into Stage 3 to push up the coverage to 31%.

And your Stage 1, Stage 2 coverage quarter-on-quarter is stable. So does that mean that the Stage 2 numbers are stable quarter-on-quarter?

No. So once you get some moratorium benefit, then they stayed there. It didn't move forward.

Okay. And most of the extra provision has been pushed into the Stage 3 category?

Yes. This is why I explained, how we went product wise and zone wise and application wise.

Sure. That's it. And just one final question, if I can? And this is on the expenses side. There has been a sort of a sharp decline, so how should one think about it?

No. So as I said, the company's focus has been on the cost, definitely. And we've been trying to explain as to when would we start to get the benefit and I must tell you that this is not over yet. We are still focusing on, as I said, on 3 or 4 major items of cost savings. And as the confirmation, none of the expenses, which reflected as reduction here, is something which is in the nature of postponement. None of them. So there, actual reduction that has happened. And we are focusing on at least 3 or 4 very strong areas of production, which we will see going forward, we will get the benefit of it through the year.

[Operator Instructions] The next question is from the line of Deepak Poddar from Sapphire Capital.

Am I audible?

Yes. But with some disturbance. But go ahead, you are.

And so I just wanted to understand in terms of -- your comment was the demand scenario over next 6 months, how do you see demand scenario shaping up?

No. So as I said, in the order of possibility, I think tractor demand is already beginning to be seen. So for us, the small pickup, the small 3-wheeler for goods carrying, the LCV will be the segment which will see traction for sure. We would start to see pre-owned vehicle definitely showing good demand and traction, but supply may not match that demand, I may -- I would believe so. And on the commercial vehicle side, it will be a single truck or owner-driven truck will possibly show some traction. I would put it in that sequence, but commercial vehicle would definitely take much longer. The passenger car purchase could take longer. But commercial applications, small vehicles or midsize vehicles could show faster traction. Tractor would definitely show much faster traction.

Understood. And -- but you still be targeting growth in this year, FY '21, maybe in single-digit growth or a double-digit -- low- double-digit growth?

I don't know. You will compare this growth to which year because April, May, June, July virtually would be low volume or no volume kind of a month as I see from the market. So if we're able to look at month-on-month growth over previous year, post October, one can see some stabilization. But otherwise, we would like to look at 2020 as a year where things not go well at the marketplace and they're beginning to improve from October is the only way we will look at growth, not growth as comparatively previous year as a percentage and fixed method.

The next question is from the line of Sanket from B&K Securities.

Sir, I just missed the cost part, which we -- the fund which we raised under TLTRO. So it was 7.5 to...

7.8. Dinesh, check, 7.5 to 7.8, right?

It's 7.65.

So Dinesh said, some -- 7.5 to...

7.5 to 7.65.

Okay. And sir, what would be your SMA-2 as a percentage of total book will be, can you give the number?

Rajesh, do you have that with you? SMA-2 to percentage of total book. We'll just give it to you, somebody will just pull it up.

Okay. And sir, last one, so this increased provision that we have made of INR 474 towards this Phase 3, that is mainly on the back of thinking that expected credit loss will go up, the loss -- even defaults will go up. But no provisioning has been done for an incremental dealing versus that might come up in the next 2, 3 quarters. Is that right?

No. So therefore, we're seeing the moratorium has been given up to May, right? And we definitely expect that between June, July, August, the customers will start paying their installment. May not all 3 installment, but at least out of the 3, they may pay 1 or 2. So they are not expected to move up in the ladder. But whereas the ones which are already in the zone beyond 90-day, to whom no other concessions have been given and they are in the same market and earning the same type of money, right? Therefore, we do expect that their buildup would be a little more. And by the time they either repay or they surrender or we retake the asset and sell, et cetera, there could be some delinquency that could arise out of that. But if things were to start to improve, like every year, we see out of our NPA of closing, at least 40%, 50% of it gets sold during the same year. So we have -- we believe that, that could take a little longer or a little stretched. And we have, therefore, estimated and made a provision. And that's why I keep repeating myself that if we were to start collecting from those accounts, the benefit of the reversals could be higher.

The next question is from the line of Roshan Chutkey from ICICI Prudential Mutual Fund.

Firstly, sir, what percentage of our cars and UV segment are the tourist operator segment where the business potential has kind of got deteriorated significantly? And similarly, if you can share what percentage of our customers are the farmer segment, taxi segment, like you said, which is doing extremely well, I mean yes, where cash flows are very strong in this case. So if you can just share some numbers around that.

So I -- my numbers may not be exactly right, but I'm kind of -- based on various reviews that have captured some numbers. But I think the taxi segment should be around 10%, 12%. The farming would be about 25-odd percent. The self business or whatever you call it or self-employed, if you may call, including traders would be around 15%, 18% would be the broad kind of a breakup.

And the rest would be?

It will be made various category, like contractors would be there like fleet operators would be there. So then it all splits itself into 5%, 3%, 7% of different difference. There could be mix. Some who are in farm plus college, right? So then we don't put them under farm community. So like tractors, there are a large number of tractor owners who have 3, 4 months of farming and another 7 months of contracting.

Right. And of those 9%, 10% of our city back in business, how many would be -- what percentage would be single-truck operators?

Roughly 4%. Roughly for particular population, roughly -- conservatively [indiscernible].

Okay. And sir, why do you think that pre-owned vehicles will do better?

For very simple reason that it -- let's say that earlier 1 vehicle carried 7 people or 10 people. If they today are going to carry only 3, the number of vehicles -- because the number of people are the same, right? It's just that in one vehicle, the number of people are going to reduce. So the number of vehicle required will go up. Now nobody is going to forecast that this is going to be a permanent reality, that in this country, only 4 people will travel in the rural India. But for next 6 months, 1 year, that could become the necessity. So instead of buying a new vehicle for this purpose, people will buy a pre-owned vehicle and put it to this use. And then they'll continue to remain in that business because the investment is not very high, right? So -- and similarly, in many semi-urban locations, where people may not want to use public transport, some may use 2-wheeler to go on their own. some may use a small car, a pre-owned car to travel on their own. Because at this stage, with a little uncertainty into the future earnings, right, many people may decide that, "I need a vehicle, but I don't want to invest so much into new." So therefore, they may look for buying a pre-owned vehicle. Now when I say the pre-owned vehicle demand will go up, one should not estimate that the pre-owned vehicle will replace the entire new vehicle buying.

The next question is from the line of Piran Engineer from Motilal Financial Services.

Most of my questions have been answered. I just have a couple. Firstly, you mentioned that you lost an opportunity of 150 per GNPL collection because of COVID. Is that because you couldn't auction the vehicle? Or what is...

No, no, no. See, ours is a very physical model where either customer comes to pay or we go to collect, right? And then suddenly, everything comes to a grinding halt and the customer has the money, but we can't go and collect nor is he in a position to come and pay. There will be a very small percentage which will come from repossession and auctioning of the vehicle and all that. But in rural India, in tractors and kind of a product, typically, what happens, if you bring back the tractor, they come. They may even borrow from their, what you call, family or whatever, and they come and settle the account. So these kind of settlements also could not happen during this period.

But sir, then if it couldn't happen, they would have been put under moratorium. So ideally, it would not have...

No, no, no. They are already an NPL. They cannot be given moratorium. These are accounts which are in 90-day-plus, which get settled -- see what happens, they get municipality payment settlement, [ AWD ] settlement. Contract builds from the state government gets settled, right? So then they come and settle their due. That's all the last quarter, especially the March is a very big month because all the government payments get released during those periods. And you see hell lot of people settling their account during that period. And that's the time when they also have a business demand. So when you take back their vehicle, they come and settle. Now this could not happen. Otherwise -- see, typically, what happens is if you look at any year for that matter, December end, our outstanding NPA number, suppose it is 100,000. You will see them come down to 80,000, 74,000 number by March because those accounts get settled. So I'm not talking of 2 EMI, 1 EMI guy not paying. So they would have anyway been frozen. I'm talking of people who are in NPA, who would have normally paid but could not pay. That's why that 1.5% difference will come.

Okay. Okay. I got it. And sir, second, just help me reconcile the numbers. About 25% of the customers did not take a moratorium, am I right?

Yes. Don't hold me by 25%, it could be 22%. It would be around that number.

Okay. But the collection in April was still around 15%. So there is still a decent number of customers who did not take a moratorium and still did not pay in April.

So you take the farmer -- no, no, no. So you take the farmer. When you told him that you don't take moratorium, but this will be the interest. He says, "I would rather not take moratorium but come and pay you end of April or beginning of May when I get my harvest money." So the 25% will not reconcile to everybody surely will repay. The 25% who did not take will have 3 or 4 categories: Some who have money, who will pay. Some who have money but will not use electronic means, but they can't physically come and pay, so they will continue to remain in outstanding but did not take moratorium. There will be a certain category of people saying, "Why should I take moratorium and pay so much interest? I would rather pay you 1 month panel interest and come and pay you when things open up." So you will have a mix of category in the people who have not taken moratorium. So please don't correlate people not taken moratorium should have all paid in April.

There are tractor customers whose EMI may not fall due even in April.

So then it won't be then the denominator of the 15% calculation either?

Yes, yes, yes.

The next question is from the line of Tejas Mehta from Old Bridge Capital.

So I have one question, and then on the reverse migration that you have seen. So a lot of people, a lot of laborers have moved back from cities to -- back to their villages. So this is basically a positive challenge of 2 kinds. One is whatever income that you would have transferred from cities to villages or to the hometowns, that will go away completely at least in the near term. And then there would be an extra burden on their whole family who are living in the rural bank, whether they are farming community or whatever it is. So in this kind of scenario, do you think that there would be a stress on the cash flow of all the rural banks? And therefore, the demand for vehicle, they may push back or the repayment would be too much that -- to try and manage their own situation, which would basically mean that for you, the recovery would be much longer than what we may be expecting?

Okay. So firstly, this assumes that a lot of laborer who are earning in city transport the money to rural to discharge liability that has been created in rural, right? That's a fundamental assumption, or the money that gets transferred there is to acquire more assets. These are the 2 bases on which your question is dependent, right?

Yes.

Yes. But the laborer who earns here does not earn so much that he sends money there to either buy assets or judicial liability. This laborer who sends money there is for the family to regularly survive and consume with that money, right? So this -- the assumption of will asset buying suffer, will recovery suffer, may not happen. But if you look at it a little more positively, if these laborers have gone back to their respective hometown, right, they have all been used locally during this farming situation as a laborer. So they have actually earned some money locally. And even yesterday, I was seeing the Finance Minister addressing that MGNREGA scheme. They can also enroll there and they can start to earn something and all kinds of stuff. The third thing is if these are migrant labor from here, they will engage them sell only in labor. But if the migrant drivers and others have gone back, they may start buying some small vehicle for their daily livelihood. They may put an LCV. They may put a small, what you call, Bolero-type vehicle, pick-up vehicle, and they will start to earn something. So one way to look at it is that it can even push up demand in some pockets if the driver community has gone back from here, starts to buy vehicle there. So far as the laborer is concerned, I'm not able to see a situation that they were earning so much here that this money was being spent there for either a repayment or for acquiring of more assets. But definitely, what can happen is, again, my guess on this, this laborer's income stopping from here can push that family into some kind of a need for borrowing from either microfinance kind of a body or from a money lender or from their families temporarily until the person gets reemployed. So this kind of small-ticket loan need can go up to meet even their daily needs.

Okay. Great. And sir, would you be able to shed some light around the activity at the APMC level that currently have gratuity levels being good or a bit faltering on the -- at the APMC level?

I think, again, honestly, I'm not tracking it very closely. But these are some mixed news that you get in some pockets. They are very active like before. But in some pockets, like outskirts of Mumbai and [indiscernible] whatever, there seems to be a lot of restrictions. So I think you have to correlate it to they are closer to which town or city and what is the COVID situation in that location.

The next question is from the line of Abhishek Murarka from IIFL.

So sir, my question is your business is basically going to remain cyclical if it is predominantly vehicle related. And in the past, you have tried organically to do SME housing or consumer durable more recently. But the deal with organic efforts is that they generally take long and also depend on the external environment. So in the current environment, would you think of any inorganic mode to either make the standalone business more structural or to become part of some larger, more structured business yourselves? Any thoughts on that?

So look at -- first of all, culturally, any M&A opportunity we will look at should fit into our strategy, right? And we should have had that as our intention to be in that business. So which means, once again, if we look at M&A opportunity, more or less, we will look at around the same space in which we are there, which means if you have a problem, you're multiplying your problem by taking somebody like that. Now you say that, no, that's not the route we want to take. Let's get into something else altogether. Now that something else altogether as an opportunity should be so large that it becomes a game changer for you, right? Now you can pick up a company with, say, INR 5,000 crore assets, let's say, they are in lab, right? Then what are you acquiring? Your -- that's not in your strategy because you have not gotten into lab business. And you are getting a size which is not a game changer because you're running already a INR 70,000 crores, INR 80,000 crore vehicle balance sheet, right? So that INR 5,000 crores will come and only take away some of your mindshare of focusing on something of that type. So that's the reason we felt that it's always good once you get to certain large site, it is good to organically grow. And if you get an opportunity to acquire in the same space that you are with a high-quality asset and in a good time, then one must look at it.

Sir, the other way to look at it would be that you've become part of another structural business or larger business, where the cyclicality comes down, anything...

Somebody else to acquire us?

If that is -- maybe anything, what would you do to basically make your business less cyclical? Now acquiring, as you said, is obviously challenging. Is the other option something that you're thinking about at all? Or is that not an option at all?

I think that we are not looking at that as an option. I think we still think that the marketplace in which we are, the semi-urban rural market, there is enough headroom to grow in the product lines that we are in. We are still not controlling our market with a very large market share or whatever, right? And we would look at, over a period of time, more products to our customers, which in a way could either reduce our cost of operation or somewhere begin to become like an anti-cyclic approach. But I think with a large balance sheet, we would like to focus on this and remain a leader in this business because we have now learned also how to handle this cyclic issue. I mean it's not that it's killing the balance sheet. We have not found it difficult to raise money. Our ratings are not suffering, right? As we do go through this pressure of earnings and once we bring some stability to that with a better mix, right, because it was very loaded towards, let's say, a tractor or a UV kind of a business. We then added cars to slightly balance it. Then we added commercial people to balance it, then construction equipment then pre-owned vehicle. Now we will also balance it by evening it out geographically. So 2 ways of derisking we will do is to make each product of a certain size and each geography to be of a certain size, then it will start playing the derisking model.

Sure. Sure. And any capital you would be requiring additionally this year?

We would love to raise capital, and we pray that the market conditions improve fast for us to be able to do that. With this kind of growth rate, what will we do for more capital, we will have to wait and see.

The next question is from the line of Shweta Daptardar from Prabhudas Lilladher.

Sir, you expressed your optimism on pre-owned vehicle segment, and that also reflects in our increased share mix for the past few quarters now. But if I even look at the competition, most of them have been whining for this particular business segment. So how is the competition flaring up for us? How are we combating it? Is there any specific geographies that we are targeting? And how about the market share vis-à-vis other players?

So I will just give out one number and that should explain all your questions. I think we see something like 200,000 customers mature, let's say, every year, or 30,000 customers mature every year for us who would try to sell their vehicle and buy a new vehicle. So we have got a very strong program now in place to transact for that customer. If I'm a customer of Mahindra Finance wanting to sell my vehicle, then Mahindra Finance will help me to sell the vehicle to whomsoever is wanting to buy, which we will finance. And we will also then look at the customer who's selling as a customer to buy the next new vehicle. So with one transaction, we are able to get one of our vehicle kind of business. So that's going to be one approach. And then you talked about competition. I think if you look at urban center and if you look at using of intermediaries and brokers, then there is enough competition. But we are in the semi-urban rural market, where even today the transaction is between customer to customer. And the broker in-between is just connecting 2 customers and not really owner of acquiring this vehicle and trying to sell like a urban city. So our participation is being the link between the seller and buyer. And to start with, we want to do this with our existing customers who are in business to sell their vehicle and then buy a new vehicle. And that number itself still is very, very large. And the third, of course, very clearly is since we have so much of relationship with all the OEMs and the exchange program that they run, when they try to sell their exchanged vehicle, that becomes an additional business volume, which we will try to process.

Sure. Sure. Secondly, how about the car segment? What percentage of your car segment is led by aggregators? Because due to COVID-related outbreak, there would have been large labor exporters, right, which is you highlighted. What percentage of the car portfolio would be aggregated?

[indiscernible] you are in this call. You can answer this question. Ola, Uber, Zoom, redi-GO together will be what? 8%, 10%, I don't know.

Of the total cost, Ola is 10%. So we have 2 million customers. So roughly 80,000 to 90,000 customers will be aggregated.

So 8%, 9% will be aggregated models, and not all concentrated in just Mumbai and the Bangalore. They are widespread across various cities.

[Operator Instructions] The next question is from the line of Gurpreet Arora from Aviva Insurance.

Sir, do you think the 3-month moratorium is sufficient for your customer set? And related question to this is when you say 75% of your customers have taken moratorium, have all 75% taken full 3-month moratorium? Or is there a variation? That's one. Second question is why have you not taken moratorium from banks? And last question is how far are we away from 2% OpEx to asset ratio, which you have highlighted earlier?

You are the smartest of the question raisers because they said you have to come back in the queue, you raised all questions together.

I hope to get the answers also, sir.

Okay. So let me answer the OpEx thing first. 2% that we are aiming at is really a dream and a stretch. And we believe that -- and last time also I said that it's not all overnight. But then a year or 2, we will work hard towards that. But to some extent, asset growth also has to help us in that. If asset continues to decline, I think the cost will look to be the same or steeper. So -- and as I outlined, the 5, 6 initiatives or area where we are looking at, when we get the full benefit of the technology interventions, digital use, I think the cost for sure will come down. When we get the benefit of cross-selling that we are planning to do for pre-owned vehicle of existing customers and create more customers, that will bring down the cost for sure. So I think 2%, we would continue to remain focused. And you will see at every stage, there is a decline in cost visible, which will give directionally to reach that 2%, right? So that's for sure. What was your second question? I'm sorry, this was one.

Sir, the first question was that -- I mean is the 3-month moratorium period sufficient for your customers?

So my personal opinion on this is moratorium should not be the approach to customer at all because there will always be a share of cultural change in customers' mindset to reap it. So in fact, we -- even as an association, we are pushing the regulator to look at rescheduling as a possibility so that you really look at the need of a customer, and it could be very different for different customers, right? So is moratorium 3 months good enough for commercial vehicle? Definitely not. For tractor, more than adequate, right? So I think do we all believe that on 31st of May, the moratorium period ends and from 1st June, everybody is going to repay on time? I want to tell you that, that's never going to be a reality. It will take people another 60 days, maybe 90 days or whatever. So from the point of view, 90 days is insufficient, but moratorium is definitely not the answer. Rather give more time by rescheduling the customer and understand his real need rather than putting this habit of not to pay types. Because if somebody takes another 3-month moratorium when he starts to earn, he will still not come and start to repay. But if you reschedule somebody's account, you will actually look at when he is likely to start to earn and you will give him only a 45-day moratorium. In some cases, you may even give a 120-day moratorium. So the short answer is 90 is not good enough, but moratorium definitely is not the answer.

And sir, why have you not taken moratorium on your bank loan?

No. So we have sufficient funds or cash flow situation to be able to repay our liability. So therefore, we don't feel it's necessary to take moratorium. We would rather raise fresh loans which could come to you at a new rate. If you take moratorium, you are extending the same loan, which could be contracted earlier at a higher rate. So you get 2 benefits: One is you repay on time and maintain your track record. Second is you raise fresh loan at a new rate rather than recasting the whole loan at the old rate.

The next question is from the line of Anish Jobalia from Banyan Capital.

So I just wanted to quiz on the tractor segment, where you say that you're seeing a lot of traction. So my question is what are the growth -- what is driving this? Whether this demand that you are seeing is temporary or perennial? And whether this demand is across the geographies?

So across the geography or not, it may not be all states, but relevant major states are showing the demand, whether it's UP, whether it's Punjab, MP, parts of Maharashtra, parts of Rajasthan. I think clearly, we are seeing relevant states are showing the demand. And it's at the back of the rabi crop being good and the kharif expected to be good after monsoon. So it's farm driven and I said somewhere in-between. We still don't see haulage application or a contracting segment buying tractor big time yet. But definitely, the farmer community is buying, so based on good harvest now and expected good harvest the next season.

And the second question is, if I can, I just wanted your view on the housing product. Just some comments around that would be very helpful.

Housing? Sorry, some comments on what?

I mean your housing subsidiary...

Yes, yes, yes. So housing subsidiary, in fact, even in one of the earlier calls, we have mentioned that, I think -- I don't know if Anuj Mehra, the CEO, is in this call. But we had consciously decided to go slow on disbursement and more focus on recovery because that was one area of concern and largely cost from Maharashtra and our assets were also really concentrated in Maharashtra. As we speak now, we were like Mahindra Finance, even in housing, we were seeing substantial improvement commencing to happen in the fourth quarter and then we hit this unfortunate time. And they have also taken a view to make a higher provision in order to be better covered. We do believe that with the monsoons being good and the harvest, this round has been good. Once Maharashtra opens up, we would see corrections beginning to happen even in the housing business. We are now looking at opportunities of growth in states which are in green zones. And they have been able to source funds from NHB under the refinancing route, et cetera. So you will start seeing some growth beginning to happen there, but the focus will continue to remain in bringing down the net NPA to even lower than where they are. Maybe another 2% to start with will be the first benchmark pattern. And that we believe will happen as Maharashtra opens up post this COVID lock order.

The next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund.

I think one after another, my questions got answered especially the one subject that -- asked the question that I had. But since I got the chance, is it time for you to look at product adjacencies that you might have been considering, possibly even start buying out portfolio from other NBFCs who will be struggling for liabilities and will not have the strength that you have? And just this one question, sir.

When you say adjacency, what product comes to your mind quickly?

Sir, like for example, you mentioned microfinance, and you're very well in rural. In 2-wheeler finance, for example, a lot of their customers are going back there buying -- maybe buying scooters and so on, so those kind of areas. Or is it in buying somebody's performing portfolio?

So 2-wheeler is something that we will look at because for 2, 3 reasons. One is we ourselves have put -- starting to put together a strategy for how to get into 2-wheelers because we did see large number of our own dealer relationships are also in 2-wheeler business, and we did see that as one possible opportunity. In this round, we do see 2-wheeler bounce back as the next best possibility. And third is you are right, that our own existing customers, all of them have a 2-wheeler. And we do believe that they may be the ones who may look for adding more 2 wheelers to their family, if they all believe to travel alone. So I think 2-wheeler is something that we would look at. Microfinance is something which long back, we had gone deeper to understand whether we should or we should not. If at all we get into microfinance, we would rather create a vertical to get in and become of a size rather than trying to buy some small portfolio. And if at all we have to do some portfolio, we would rather look at refinancing some microfinance NBFC but nothing of that type at this stage. So any business that is not in our road map for growth or as a strategy, we would rather not look at them. And the 2-wheeler comes within the vehicle family, and therefore -- and a lot of ecosystem support available. So we may look at that as a possibility.

Ladies and gentlemen, due to time constraint, we take the last question from the line of Subramanian Iyer from Morgan Stanley.

A couple of questions from my side. So one is what was the loss of business case in the month of March from a collection perspective given that the lockdown started pretty late in the month? And the second question is what are the outcomes that you're budgeting from a collection efficiency perspective in the coming months? And if I can maybe -- okay, I have 1 more question but maybe after these 2.

Okay. So the number of days that we lost when look at it from the lockdown time to the month end, it would have been 12, 13 days. But the beginning of this problem had already come in. So I think in terms of active days lost in March would have been at least 15, 18 days, if not more. And that's very substantial from a March perspective given normally things starts to shape up from 10, 12 and most towards 25, 28 for things to settle down. So that -- maybe about 15 or 20 days is what we lost in March. That is very clearly. In terms of efficiency, as I said, April, our expectations are 0, but we had about 10-odd percent, 14% of whatever collection. This month, we do expect that, that would be going beyond 20%, 30%. And then gradually, I think each month, it would add about 5%, 10% before we can say it has at least reached about 70%, 80% by September, October and so on.

Got it. And the last question is just more of a number question. When I look at your IRAC Stage 3 provisions, the implied coverage works out to about 37% and your Stage 3 coverage for the Ind AS is about 31%. So what does it imply exactly in the sense that does it mean that these loans are quite aged because the IRAC provisioning is well over 33%, which is generally -- it is -- basically, these assets are a year or 2?

So I know technically, Rajesh can answer better. But in Ind AS, what it really reflects is that we don't expect the loss to be higher than this is what we cover under Ind AS. For sure, we're looking at both historic as well as way forward.

Yes. On the IRAC, you compare the total provision. I think the NPA provisioning, which is not correct. The Stage 2 provisions are quite higher in India. So when you see it, you have to compare total. Even the RBI says you have to compare at a total level and not at a stable level. So we have...

In fact, IRAC gradually moves from Stage 1, 2 to 3 whereas in the Ind AS, it comes to Stage 3. 1 and 2 is not recognized for calculating the coverage.

So as the standard asset requires only 0.4% of...

So if you see on a total level, we are more -- the provision under Ind AS is more than direct. And we have not created an impairment reso as required under the new guidance they have issued on March 30.

Yes. The point on the total coverage is taken. My question was more from a perspective that -- sir, I was a bit surprised that even under Stage 3, your IRAC provisioning is...

They are 2 different methods, right? There is -- with the aging, you increase your provision under IRAC, whereas under Ind AS, it's a common rate, what we apply to all of it.

I now hand the conference over to Mr. Abhijit Tibrewal for closing comments.

Thanks, Steven. Many thanks for the Mahindra Finance management and all the call participants for a very vibrant discussion today. Have a great evening. Thank you all.

Thank you.

Ladies and gentlemen, on behalf of ICICI Securities Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.