Shriram Finance Limited (511218) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Shriram Transport Finance Company Limited Q1 FY 2021 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I now hand the conference over to Mr. Umesh Revankar, Managing Director and CEO, Shriram Transport Finance. Thank you, and over to you, sir.

Thank you. Good morning, friends, and good evening to those joining from western part of the world. A warm welcome to all of you who have joined this call. I hope all of you are keeping good health and safe in confines of your homes. Joining with me today on this call are Parag Sharma, CFO; Sunder, Executive Director; Sanjay Mundra, our IR Head. I'll take a few minutes to speak and then let us go for Q&A. We witnessed total lockdown in the beginning of April, which started from March 24. We opened our office towards the end of April, and the government allowed NBFCs e-commerce delivery to start functioning, even though in a limited way. The farm activities, construction activities in the rural area, goods carrier vehicle, highway shops, manufacturing in rural area and special economic zone all were opened over the period, and subsequently, the taxi cab aggregators were allowed to operate in the orange zone. The government unveiled phased reopening from June onwards. These included restrictions being lifted on interstate and intrastate movement of goods and persons. Further, in July, most of the activities were allowed in non-containment zones, except entertainment, recreation, gathering and educational institution. The government unveiled a series of growth measures to kick start the economy. The government announced production-linked incentives for various industries to increase their domestic productions. The coal sector was thrown open to privatization. In mining, it was announced that blocks would be auctioned and stamp duty payable on mining lease allocation would be rationalized. FDI in defense manufacturing was raised from 49% to 74%. Indigenization of imported spares was promoted, by the way, of a proposal to notify certain weapons for import ban. This is expected to lead to an upward correction in the medium term in the index of industrial production. That's mining and manufacturing index, which contracted by 57%, 33%, 16% in April, May and June on a year-on-year basis. The RBI also announced various measures. It undertook conventional and unconventional measures to ensure liquidity to the extent of 4.7% of Indian GDP. Its efforts to transmission of monetary policy to bank lending rates led to lower borrowing costs and in turn, a record issuance of corporate bonds amounting to INR 2.1 lakh crore in Q1 FY 2021. The RBI announced various relief measures for MSME, including new restructuring guidelines for retaining standard classification of banks and NBFCs loans to such eligible MSME within the regulatory framework. The government and RBI started a special purpose vehicle under SBA capital market to purchase short-term papers of eligible NBFCs, solely for the purpose of extinguishing their short-term liabilities. The government also increased its focus on rural economy by the way of upward revision of minimum support price, increased budgetary allocation to Mahatma Gandhi National Rural Employment Guarantee Scheme, which is popularly known as NREGA, to INR 1 lakh crore, and also introduced a NABARD-refinanced additional emergency working capital for farmers. The cumulative monsoon rainfall till July 31 was near normal, leading to total area sown as on July 31 under kharif crop being 5.9% higher than last 5 years' average. The rural economy is doing relatively well on account of measures as stated above. India's infrastructure investment target for the next 5 years has got bigger with the task force on national infrastructure pipeline, increased the figure to INR 111 trillion from its initial projection of INR 102 trillion. We expect some additional push on infra spending in the second half of the financial year, resulting in higher economic activities. I now come to auto industry. The commercial vehicle sales fell by 84.8% to around 31,636 units. Within the commercial vehicle industry, the pre-owned commercial vehicle segment is doing relatively better due to lower ticket size and increased usage in the rural area. The LCV segment is expected to do better than HCV due to steady rural demand and rise in e-commerce deliveries. The overall commercial vehicle industry is expected to contract by 25% to 28% as per the ICRA estimation. The new tractor sales have gone up in the month of June and July, reflecting higher agri-based activities. The earthmoving and construction equipment new sales are currently down by around 64%. But we find steady demand for used one as the local government, that's especially municipalities and city corporations, and rural infrastructure work continue to be there in most of the states. We expect improved demand post rains as large infra spend kickstarts. However, all the above-mentioned measures announced by government and RBI are acting as enablers for Shriram Transport Finance performance in the coming quarters. In terms of operations, all our branches were fully functional in Q1 FY '21, subject to few local administration restriction. We focused more on reaching out to customer either by phone or physically meeting in predetermined places like [ petrol pumps ], grocery shops, et cetera. The disbursement for the quarter was INR 985 crores, mainly in the second half of June. And the disbursement for the month of April and May was totally impacted because of lockdown and RTO offices remained closed. All our lending activity involves RTO being present because owner of -- transfer of ownership needs to take place. And in the absence of that, we cannot do the lending. Now I come to discuss key performance numbers for this quarter. The AUM was INR 111,756 crores in Q1 '21 as compared to INR 106,343 crores in Q1 '20. The net interest income was INR 1,820 crores in Q1 '21 as compared to INR 1,947 crores in Q1 '20 due to lower disbursement in the month of April, May and first half of June. Profit after tax stood at INR 320.06 crores in Q1 '21 as compared to INR 636.25 crores (sic) [ INR 634.25 crores ] in Q1 '20 due to additional provision of INR 956.15 crores related to COVID-19. The EPS was INR 14.11 as compared to INR 27.96 in Q1 '20. In terms of collection for the month of July, the numbers -- number of customers paid, either full or part of the EMI, were 73% against 71% in June, and May and April were 52% and 23%, respectively. I'm pleased to announce that we successfully concluded our INR 1,500 crores rights issue, which was opened on 16th July and closed on 30th July. The same was oversubscribed by 1.65x and the allotment was done on 6th August 2020. The promoter stake increased to 26.48% from 26.25%. The liability buffers as on August 12 stands at INR 9,686 crores against INR 5,724 crores as on May 31, 2020, last reported. That concludes my opening remarks. Now I request moderator to open the floor for question and answers.

[Operator Instructions] We have our first question from the line of Kashyap Jhaveri from Emkay Investment Advisors.

My first question is on this payment numbers that you have given in the COVID update. So when you say 73% of the customers have started paying or have paid in July 2020, just wanted to check, how does it reflect in the collection efficiency ratio? So for example, if you have raised the demand of, let's say, INR 100 from your customers in July, what kind of collection could you do in the month of July? And if you could give that number cumulative for April to July also?

See, you are talking about raising demand. Since there is a moratorium, there's no demand as such in July. The demand will be lower. We have offered moratorium to most of our eligible customers. And…

Under 2.0 also?

Pardon?

Under 2.0 also?

Yes, yes. So there is no demand. But what we had told customers since they would be paying additional interest for the ongoing quarter for the moratorium period, we requested them that if they're earning, they can pay. So people have started paying. So our collection effort is with moratorium or without moratorium, both.

Okay. So this 73% payment, which you were mentioning, would also be only interest payment if they could do it?

No, no. It is the EMI payment only, but they include both moratorium -- customers who are under moratorium or who are not under moratorium, both.

Okay. Okay. Okay. Second question is on your margins. Again, this quarter, there is a decline in margins. Last quarter, there was this INR depreciation on your ECB, which probably impacted the margins, but again, this quarter, the margins have come down by another about 30 basis points. So what is the reason for that?

No, it's basically because we are carrying a little higher cash than the normal. That's the main reason. And other reasons could be…

Higher provision.

Higher provision.

Okay. But would it impact margins actually?

See, we were mobilizing the overseas borrowing -- tapping the overseas borrowing for the past couple of years. And the major borrowing happened in the first quarter of 2019/'20. Till December 2019 quarter, we had gains in the foreign exchange transactions. And then in the last quarter of March 2020, there was a reversal of the gains to start with. And there was -- and hence, there was an artificial increase in the interest costs, and there was a shrinkage of net interest income. Then in the current quarter, what we observed was that the forward premiums had shrinked substantially and then was resulting in a huge impact to the P&L. And hence, we decided that since it's more of a notional hit that we need to take on the P&L, the company decided that we'll start following the hedge accounting. And accordingly, the INR 254 crores has been pushed out of the P&L and then brought under OCI component. And going forward, we expect that the fluctuation on account of derivative accounting will not impact the NII.

I'll probably take this offline. And just last -- one last question is that working capital loans again in this quarter have gone up another 10% Q-on-Q. So I mean there is no insurance premium because there is no sale. Probably, businesses are not there. So why there is this increase again in the working capital loans? Are we making sure that people are not using this money to probably pay back that 73% payment that we are seeing?

See, this payment goes to insurance company directly. The insurance is for renewal also. It is not only for fresh business. So all the insurance, the vehicle which has insurance, every year it gets renewed. And customers do take -- we do give them insurance loan. Not only that, our fuel credit, last time -- last year in the first quarter, we had a tie-up only with HPCL. Subsequently, we have tied up with BPCL and IOC, both. So more customers are availing fuel credit now. So the insurance premium what is being financed that is almost same as last year because all these last year's loans will come for a premium -- will come for a renewal. And all the payments are going directly to either fuel company, tire company and to the insurance company and nothing goes to the customer.

We have next question from the line of Sanket Chheda from B&K Securities.

My question is that for -- our disbursement in this quarter was down 92%. Now we have stated in the presentation that collections for the month of May and June were about 52% and 71%, concurrently. So my question is, sir, if we add the disbursement to last quarter's AUM, still the reported AUM is slightly higher. So just wanted to know the quantum of maybe interest accrued that has been -- that has got added to the advances? And also why the repayments look very low, like, if collection efficiency in April was 23%, May 52% and in June, it was 71%, at least for the full quarter, the repayment should have been at least 50%. So proportion of maybe partial EMIs looks much higher. So any sense on that?

Yes. The partial payments are much higher because most of them are under moratorium.

Okay. And the quantum of addition maybe due to accrued interest to the AUM?

See, in a quarter there is an accrued interest of around INR 4,000-odd crores. And as against that, if you see in the previous quarter, the June quarter, we had a total collection of INR 3,600 crores, which maybe if you consider the pre-COVID demand, it works out to around, say, 33% collection for the quarter. But in terms of the number of customers being able to pay, whether it is a part payment or full payment, it was, as it has 73% in July. And coming to your question, why the collection is low, that is primarily because even though the number of customers paying is 73%, the quantum is, it was 33% as of the June quarter. And the interest accrued for the quarter was more than the collection. And technically, that is the reason why the AUM has gone up. And also there was a disbursement of INR 1,000-odd crores -- INR 985 crores, which contributed to an increase in the AUM. Coming to the July scenario, we had stated that 73% of the customers have paid. However, if you see the absolute amount pre-COVID demand, we should be around 53% of the collection, which translates to around, say, INR 2,300 crores, INR 2,500 crores of actual collection coming in, which is higher than the interest accrual for the month. So the subsequent -- this Q2, I would say that the collections will be much more than the interest definitely, and some component of principal also will be collected.

Sure. Sir, one last question, sir. Any further update on the merger?

There are no discussions on merger as of now. It is under pause.

We have next question from the line of Piran Engineer from Motilal Oswal Financial Services.

Just a couple of questions. Firstly, in the last 4 months, how has driver-cum-owner's profitability moved given the low capacity utilization and rising diesel prices?

See, the utilization level of owner-operator has been much higher in the last couple of months, especially in the month of May, June, July, other than April, because all the essential goods movement has been done through owner-operator only. And because of lack of driver availability, most of the large fleet operators have not been functioning. And so the utilization level of owner-operator has substantially gone up. And I don't really see much challenge for their profitability.

Okay. But what about rising diesel prices impacting their inherent profitability?

The freight prices also have gone up. Freight prices on an average has gone up by 15% to 20%. All the FMCG manufacturers have increased the freight rate. Plus on all the essential, what we call, your vegetable and perishable goods, the freight rate has gone up by 30%. And that is maybe reflected in the food inflation also. I think yesterday, if you had seen the food inflation, it has gone up to nearly 9%. So this is mainly due to increase in the freight price.

Okay. Fair enough. And sir, what percentage of our customers have not paid us since April? And then for these customers, how are we thinking about restructuring? Will it be on a case-by-case basis? Or will it be a blanket restructuring plan for all customers? How does that work out after the moratorium?

We don't really see much scope for restructuring because we have given moratorium to the customer. And in the -- what happened in the month of April, it need not be in the month of July or August because April was totally locked down. So we have to remove April out of our question and look at how many people have been paying in the month of July and August. So around 73% of the people are paying either part or full. They do not really come under -- they do not really need further restructuring. So what we feel is that people who need restructuring are the people who cannot -- who have not operated at all in the last 6 months and do not have a visibility in the near future, the next couple of months, after the moratorium is over. Only those people, we need to restructure. So my expectation is restructuring is required for less than 5% of the people, unless more customers really want to do the restructuring. So we are keeping the restructuring as low as possible.

So it's fair to say that 27% of our customers have not paid us in the last 4 months, if 73% has paid us so far?

You are right. You are right. You're right. Some of them would have paid part. Some of them would have paid -- not paid at all.

Okay. Actually that have paid in part, they are part of the 73%?

No, no. See, some who have paid part in July would not have paid in August and would not have paid in June. Some -- you will have such kind of accounts. But people who felt that they have a moratorium, they need not pay, they're also there in the number. They would have earned but would not have paid because they are under moratorium. So that also we need to look into account. So actual people who need restructuring would be less than 10% is my guess. Because see, we need to look at people who cannot start their business. People who have not started their business, only 1 segment I see are the aggregator vehicles like Ola and Uber. Even though they have started in some cities, like Bombay and maybe Chennai, these are the 2 cities where they are not operational. But rest of the places, they are operational. So we need to only see those cases and take a call. So the industries which are most affected because of COVID are travel, aviation and hotel industry. And our exposure there is very, very limited.

We have next question from the line of [ Abhiram Iyer ] from Deutsche CIB Center.

So first, right now, I wanted to talk about your collections. Can you give month-wise, what was the percentage under AUM, which paid partial collections? These are percentage numbers, I agree, but can you give as a percentage AUM month-wise from April to July? That's my first question. The second question is on the fall in operating costs. Noticed that operating costs have been lower 30% quarter-on-quarter. Could you give a breakdown on how this was achieved? And is this a run rate going forward?

On the collection numbers, we will give you subsequently. We don't have against AUM the collection percentage, which Sanjay would give you. As far as the cost is concerned, we will -- see, what we had decided is senior management will take a salary cut by around 20% -- 10% to 20% at 3 different levels. And that is one. And most of the real estate, that is rental cost, we renegotiated. And either we got some waiver on payment of rental or we got re, what you call, calculation of rentals, in the sense, by lowering 15%, 20% for the next couple of years. So these are the major decrease in the cost. And also other travel-related restrictions. So we restricted all travels and most of the meetings were held on virtual mode. So these are all the cost reduction plans. And we also have not recruited anyone. And around 700 people have either left the company because they could not join the office post COVID when we restarted the office. So these are all the, I should say, a major reason for reduction in cost.

Got it. And just one more question. Could you please let me know what the amount of bank lines availability you were at the -- as of date? And how much was securitized during this quarter?

Securitization. Parag will answer it.

Securitization, INR 2,100-odd crores. And bank lines, you're talking about the fresh borrowing what we have done?

No, no. Unused lines availability right now.

It is close to around INR 2,000 crores.

We have next question from the line of Subrat Dwibedy from SBI Life.

Yes. Hello. Am I audible?

Yes, you're audible.

Just a couple of questions. So you have given the liquidity position as of the end of June. As on date after the equity infusion, plus in the last 1, 1.5 months, you would have raised some money. As on date, if you could update us on the liquidity position?

So what we have given is as on date, as on 12th of August.

Okay. Okay. Okay. On the MSME guarantee scheme, how much would be the eligible pool? And how much would you have disbursed under that?

The total sanction amount is around INR 3,000 crores and disbursement is around INR 100 crores now.

There have been various modifications to the scheme. As of now, they have permitted individuals also. On the overall book, what will be eligible will be substantial. But as of now, what we have sanctioned is around INR 3,000 crores. And as mentioned, disbursement has been around INR 100-odd crores.

Okay. So the collections in terms of absolute value, they were around 50%, 55% in June as well as in July, if I'm not incorrect. So why has it not improved significantly in July? It has more or less remained flat. And so how does the August trend look?

See in fact, the number of containment zones have increased and lockdown increased in the month of July. Especially 2 large states, Tamil Nadu and Maharashtra is under full lockdown. Subsequently, Bihar, Jharkhand, Uttar Pradesh, they are in total lockdown. Plus also, you'll Bihar and Assam, where most of the places are under submerged because of the flooding. So that is the reason July, the collection did not -- substantially did not go up. But we expect the -- as the rains are now a little better in Bihar and Assam, and even this containment zone also are a little more relaxed, we expect the collection to be better in the month of August. And probably in the month of September, it should be a first full month with normal collection.

Okay. And perhaps, one last question from my side. So equity raised so far is only around 8% of the net worth. Would you see further requirement of raising equity and whatever that enabling resolution where you could raise further capital through various other means?

See, we are not immediately looking at it. Post AGM, we will look at the situation. And as of now, we are not hurrying for further raise of equity.

Capital adequacy is good.

Our capital adequacy is good enough as of now. It is 19 -- 18.4% -- 18.5% now tier 1. So we are not in a hurry.

We have next question from the line of Aditya Jain from Citigroup.

So on the 27% of customers who haven't paid in July, how many would qualify for restructuring under RBI guidelines?

See, we have to wait for August to see -- August collection to see. But our initial estimation says that around 10% of the customers -- less than 10% of the customers, we would be willing for restructuring. The qualification for restructuring may be higher, but how many we would like to be restructuring, that's important.

Okay. And did I hear it correctly that the main impact on NIM is due to bearing higher liquidity? That there is no impact of hedge accounting in this quarter?

Yes, correct.

Correct. Yes.

Correct. Does the ALM disclosure in the presentation include assumption of normalization of moratorium? Or is it as per all customers pay on time?

ALM typically is what is receivable from the customer. So it includes everything.

So as per contractual payments?

Yes, correct.

We have next question from the line of Vivek Ramakrishnan from DSP Mutual Fund.

I know it must be difficult operating this on/off environment. So actually, all my questions are related to liquidity and ALM only. Sir, it's reasonable to assume that out of INR 9,700 crores, if you take out INR 2,000 crores of bank lines, which are unutilized, we have INR 7,700 crores of cash. And that ties in with the INR 5,800 crores, which you show in your ALM statement in Page 19, plus another INR 2,000 crores -- INR 1,500 crores coming in from equity issues. So is that mathematics correct?

Correct, correct. Vivek, that is right.

Okay. Excellent. Sir, the second thing, which I want to ask is, you were talking about public deposits, the numbers being more or less flat for the quarter, though you said that in July, there was a break up. I think you can move to 1.5x of net worth, this is about INR 27,000 crores or INR 30,000 crores, and your public deposits is around INR 12,000 crores. Is there any effort that the company is making in terms of improving that because that will give you liquidity as well?

Yes, Vivek. We are working on that. We started working on opening, when -- opening means, accepting deposits at all branches from June this month. We are depending mostly on the channel for accepting deposit, not in the branches. And effective from this year, from June, we have started accepting in the -- all the branches. And we are able to see good progress in the month of July. And we are aiming at reaching INR 15,000 crores by the end of this financial year. And as rightly said, we can raise up to INR 30,000 crores fully. So let us first reach a target of INR 15,000 crores by this year end. And then maybe next year, we will take further target. And ultimately, we would like to reach the INR 30,000 crores or 1.5x target because the deposit cost earlier used to be a little higher, but now deposit cost is on par with any other cost, like including bank or the capital market. So we will definitely focus on deposits. And all the branches are enabled, and we have around 1,758 branches. So this will take some time for building the momentum. But July has been good and definitely, we will reach the numbers.

We have next question from the line of Umang Shah from HSBC Securities.

Congratulations on a good quarter. Sir, I just had 2 questions. One was on the credit cost, clearly, we have built a significant buffer on the balance sheet. So if I look at our non-Stage 3 coverage, we are now a shade below 4%. And even on Stage 3, our coverage is closer to about 39%, 40%. Any guidance or -- on credit cost? Or how are you looking at building or sustaining these buffers once the moratorium ends?

See, we have taken the latest situation for making the buffer and provisioning. So if the core situation remains at this level or comes down, then probably we don't really need to add further. So that's our assessment.

Okay. So probably in the second half, I think -- so is it fair to assume that in the third and the fourth quarter, probably, we may see a more normalized sort of a credit cost and maybe Q2 might remain a bit elevated?

Q2, we have to wait -- I can't comment on that. But yes, we are going for a normalization. And I think the September month would be crucial. And if you see September month we come to normalization, then we may not really require to provide additional COVID because we have already substantially high COVID provisioning we've made in the month of March and June.

All right. Sure. Sir, my second question is on net interest margins. Given that now we would be routing all derivative-related promotional gains or losses through OCI and probably we'll start seeing full quarter of disbursement starting the second quarter onwards. Is it fair to assume that the net interest margins that we have seen in this quarter should be more like a bottom margin and incrementally margin should kind of either remain stable or gradually improve from hereon?

See, one of the component is the higher cash, what we are carrying, cash we are carrying, that cost would remain for another couple of quarters. But net interest margin definitely has to -- would improve because the borrowing cost is slowly now coming down. Whatever the RBI tried to improve on, what you call, the borrowing cost to bring down -- RBI has been trying to bring it down. And that is getting reflected with the new sanctions, bank loan sanctions. So I think the cost should come down for us over the period. So we have to go -- we should go back to our normalized net interest margin of 7% by the last quarter.

All right. Fair point. And just last data point I wanted to confirm. INR 2,100 crore of securitization was done in this quarter. And what was the corresponding number for the fourth quarter?

Fourth quarter…

INR 2,360 crores.

INR 2,360 crores.

We have next question from the line of Subramanian Iyer from Morgan Stanley.

Just wanted to know the absolute repayments of April, May and June in rupee terms?

Subbu, the percentage we have right now, but absolute amount, we don't have right now. So I'll give you. Percentage was 15%, 30%, 51% and 53%.

We have next question from the line of Oon Jin Chng from HPS Investment Partners.

I have just a couple of quick questions. In terms of your gross Stage 3 assets, the number came down, absolute dollar amount came down. I just wanted to understand how did that number come down?

That is primarily because of the moratorium extended to most of the customers. And in spite of the moratorium given and the due is not happening, the customers started repaying. And hence, that is one of the major reasons why the gross Stage 3 has come down.

Okay. And then second question I have in terms of -- can you give a bit of color in terms of the -- your loans, especially towards the commercial vehicles, the LTV, how much of it -- what is the ratio now? And how has that changed for this quarter? Because any impact from the recent COVID-related…

No. The segment-wise, the ratios remain same because further disbursement was less in this quarter.

And what was that number, current -- what's the number of the LTV?

LTVs are lower, but we have been maintaining lower LTV right from October 2018. So the -- all the disbursement post October 2018, the LTVs have been reduced to around 65% from 75%.

65% from 75%, and that's been the case for the last couple of quarters you mentioned, even including the 1Q, like those…

Yes. For more than a year now.

We have next question from the line of Mansi Sajeja from SBI Funds.

Just on the liquidity number that you have given. The SLR investments are a part of that INR 9,600 crores that we have given? And secondly, if you could just highlight the various schemes, which were the liquidity schemes like the Partial Credit Guarantee or currently, also the 3-month liquidity scheme. What has been the raise under all those avenues?

Yes, this SLR is not included in the liquidity. SLR is INR 1,800 crores, which is separate. When it comes to the various schemes, on the TLTRO, we raised a very nominal amount of INR 200 crores only. When it comes to Partial Credit Guarantee, there, we have raised close to around INR 1,600-odd crores. And when it comes to other major special liquidity window, we have not raised anything because that is very, very short-term in nature. The SIDBI Liquidity Scheme, which has a 1-year facility, there, we have raised INR 350 crores.

Any further proposals in PCG and other schemes, which are pending?

Yes, PCG, there are few proposals which will be close to around between INR 2,700 crores to around INR 3,000-odd crores. That is the quantum. But they are slightly slow because the process is quite long getting guarantee approvals and all that, slightly longer procedure. But we are still not -- we're pursuing it. If it is not coming through the guaranteed route, whether we can do a direct securitization is what we are evaluating. But these [ are proposals only ].

We have next question from the line of Kunal Shah from ICICI Securities.

Yes. So firstly, in terms of this, the gap between collection efficiency and restructuring number which we are talking about. So maybe if I have to look at it in terms of value terms, currently, 47% would have not paid July installment, okay? And at the same point in time, we are talking about maybe not more than 10% getting into restructure. So what would happen with this balance 37%? Are we sure that in terms of the recovery once they are out of the moratorium, maybe they were just preserving cash and they would pay up or maybe we would be stringent in terms of restructuring, looking at the liability and some of them would even slip into NPLs? Or maybe they will get some ECLGS support and that would help them in the near term. So what would be the -- maybe, I would say, if you can broadly break like that up between the gap which is there?

See, the customers, we believe once they're out of moratorium, they will start paying because during the moratorium, we normally don't force customer beyond a particular limit and reposition threat is virtually not there. And post moratorium, the situation will be totally different. So customer would be paying. And since the -- one of the major reasons for people not really earning and paying is lockdown. So once the lockdown is totally removed, the question of somebody postponing the payment doesn't come. So we feel that collection efficiency will go up. Then only in the first week of September, we would be able to assess who requires a restructuring because if somebody has a business, which is yet to become operational because of the COVID situation, then only we can restructure. Our own assessment is that people who really require restructuring will be less than 10%. The rest of the people who can operate and cannot pay, then we have other options of recovery. So all our recovery options, we will keep it open. So we will be quite strict and stringent on collection.

Sure. And when we see this gap in terms of 73% in borrower count and 53% in value, so this 10% would be the customers, but given that the gap between customer and value is huge. So maybe actually in terms of the quantum, the percentage of customers who would seek the restructuring, could that be on the higher side, so maybe 10% of customers but much higher in terms of value? Could that be the case or it will be a similar one because that gap is high in the current collection efficiency?

It will be a similar one. It will be around 10% in value terms also.

Okay. And secondly, you've highlighted that significant proportion would be eligible for ECLGS, but some quantification would really help. Maybe in terms of sanctioned, we said INR 3,000 crores, but now with individuals also getting qualified, any quantification in terms of how much of our book would get eligible under the scheme?

See, eligibility wise, it will be much higher. The securitization -- securitized portfolio is not included. So what -- so we need to eliminate a certain portfolio so -- for the eligibility. We have sanctioned including the individuals now. Whatever is the sanctioned amount is including the individuals. The -- one of the reasons for not extending is the cap on lending rate because there is a cap on lending rate at 14%, which we do not want to extend to everyone. So we need to be a little more careful because that should not become new norm for the customer.

So how much would -- any estimate how many would get incrementally?

I did not get…

No, sir.

How much more do you mean?

How much can we sanctioned as a proportion of the AUM now going forward, given the lending rate cap as well as the eligibility?

Maybe another INR 2,000 crores more we can sanction. But we need to really look at the overall -- the customers need also. If a customer need only we can give. And as I was telling you, the lending rate cap is one of the hindrance for us.

We have next question from the line of Alpesh Mehta from Motilal Oswal Financial Services.

So first question is, it will be on repayments. Sanjay, you mentioned that 15%, 30% and 51%, the collection numbers, does this include the interest component as well? Or if only…

Yes…

Everything. It's the EMI.

It's EMI. So effectively, the principal component, can I assume that -- I believe the total number -- absolute number would be around INR 3,500 crores to INR 4,000 crores. And of that, almost 50% would be interest?

We'll take this question offline. Maybe you can touch base with Sanjay, he will update you.

Okay. Secondly, Parag, I just wanted to get some sense on this derivative thing. So what was the exact quantum routed through P&L as a mark-to-market number for FY '20? I see in your annual report, in the cash flow, it's around INR 6 crores. Is that number right?

Yes, correct. See, as I was telling you, it was minimal in the previous year. We had a couple of quarters of some marginal gains. And in the last quarter, there was a reversal. And the current year only, the first quarter, we had a substantial impact, and hence, we decided upon the hedge accounting. And in the current quarter, there are 2 components to the hedge accounting. One is the effective portion and the other is ineffective portion. The ineffective portion of 9%, which comes to around INR 25 crores has been routed through the P&L. And the effective portion of 91%, which comes to INR 254 crores has been taken to the OCI.

Perfect. And just a related question to this. If I see your balance sheet, 1Q FY '20 number for derivative financial instrument mark-to-market on the asset side was around INR 13 crores, which increased to INR 759 crores. The entire increase would have been because of the increase in the foreign currency liability, right?

Correct.

We would have entered into the contracts because of that?

Correct.

And this quarter decline is largely because of this mark-to-market gains or losses that you had taken through this year?

Yes, correct.

And for the past, whatever the mark-to-market gains or the losses, you -- whatever the changes that you had to do in this quarter, current accounting, you would have routed into the reserves itself, right?

Yes, it has been taken into the OCI -- it goes directly to the reserve.

It goes directly. So there is no reversal in the P&L and then you routed into the OCI?

No, no.

There's nothing like that. There is no reversal on it.

No, nothing like that. Yes.

Okay. Basically -- and what would be the capitalized interest for the quarter?

Pardon me?

What would be the capitalized interest for the quarter because of the moratorium number?

See, capitalized interest, you -- see, we had booked around close to INR 4,000 crores of income. And out of that, we also got a collection. So the net may be around INR 1,000 crores or something would have been the capitalized income.

Okay. No, because I'm just trying to see the numbers. If I see the change into the AUM on a quarter-on-quarter basis, that's around INR 2,000 crores. That adjustment that we did was around INR 1,000 crores.

Yes. Out of that, fresh disbursements contributed to INR 1,000 crores. And the balance INR 1,000 crores is the capitalized interest.

Yes, but there will be some collections as well, right? So it would be…

Correct. See, INR 4,000 crores was booked. See, if you see the AUM, INR 109,000 crores was the opening, and we booked INR 4,000 crores of interest income, INR 1,000 crores of disbursement. So INR 5,000 crores has been added and collections of close to INR 3,000 crores. And hence, we get the INR 2,000 crores of increase. So effective interest capitalization is INR 1,000 crores.

Okay. But logically, that INR 4,000 crores of interest that you booked in the quarter that would not -- logically, the entire interest component should not be the part of the AUM movement, right?

See, out of the INR 3,000 crores we have collected, so INR 1,000 crores is increase on account of interest capitalization and INR 1,000 crores on the fresh disbursement.

Perfect. So the collection number, I'll take it offline.

We have next question from the line of Nidhesh Jain from Investec Capital.

Sir, can you give the data on the customers who have paid fully EMI in July and who have paid partially. Out of this 73%, what percentage of customers have paid full EMI and what percentage of customers have paid partial EMI?

We don't have the right -- number right now. Sanjay would -- you can reach Sanjay for that.

And secondly, just on margins. It is -- is it correct to understand that the impact on margin this quarter is just INR 19 crores and -- because of this movement in foreign currency derivatives, is that right number to understand?

Correct, correct, yes.

We have next question from the line of Chirag Shah from Edelweiss.

My question was on repossessed vehicle. So if you can indicate what is the scene over there? What kind of stock you are having? And post moratorium, how are you looking at repossessed vehicle kind of addition that you see in terms of rent?

We could not do a lot of -- probably you are aware that we do only -- we do sell only through physical auction, and we have not done much of physical auctions in the last 3 months. So whatever the repossessed asset as on March remains. And last month, July, we have started doing physical auction. So in the couple of states, we could start doing it. And maybe in the month of August and September, we would be able to sell off the balance. So total repossessed assets should be around -- you want number-wise? 12,000?

Yes, number-wise would…

Around 15,000.

Around 15,000 numbers. So value terms…

How does these numbers take generally? Is it on the higher end of the down cycle? Or this is the normal run rate that you generally have?

No, it's a normal run rate…

Can the run rate shoot up significantly?

No, no, 15,000 is normal run rate. So every month, we'll have at the end of the month. And whatever was there in the month of March is continuing. In April, May, June, we have not done any repossession because of the moratorium.

Okay. And once moratorium opens up and if customers are unable to pay, you will be looking at doing the repossession activity? Or you will give some leeway for another 2, 3 months to them?

No, no. We will look -- we will be repossessing the assets if the -- because once -- it depends upon the market condition. If the local area comes under containment zone and if the operator is not able to operate, then we will give time. If not, we will not give any time.

And sir, as a follow-up, would it be right statement that resale value would have actually gone up in last few months simply because this activity has slowed down?

Since not many buying and selling was happening…

And also BS-VI has come because of -- and also BS-VI has come, so even that would have led to some increase in resale value of trucks?

Yes. Resale values of trucks have improved. But since the transactions are very few, we cannot take that as the value -- because unless there is a large number of transactions, we will not be able to assess. But as of now, resale values are better. And you are right, because of BS-VI, vehicle prices are 15% more. The resale values of used vehicles is higher.

Yes. And sir, one last question, if I can squeeze in. In general, how would you rate or assess the financing situation in the system from your perspective or from any financials perspective? Can you tighten further because you have indicated you have tightened your financials more than a year back? Can you tighten further the LTV ratios or the credit profiling? Or this is probably the -- where it would stay?

The LTV wise, we have tightened. But credit profile wise, since we have been lending to our customers, without track record also. If the driver wants to become owner, we have been funding. But we always ensure that he has a good guarantor. So the guarantor is the key for our lending decision. And guarantor is normally our existing customer. So there, we have been quite stringent, and that will continue.

Okay. So it cannot -- it's unlikely to worsen from what it is today?

Yes, you're right.

We take the last question from the line of Nishant Shah from Macquarie.

Sir, just one question. In some of the earlier questions, you mentioned that the driver availability is a problem for the street guys for the utilization, but the SRTOs is higher. You also mentioned that the freight rates have gone up anywhere between 15% and 30%, depending on the type of consumer. So in this context, then, how does this not translate into a better kind of a collection efficiency or a better kind of -- just overall activity level or income level from our customers' point of view, should -- like where is the disconnect between the 2?

See, basic disconnect is overall logistics and supply chain it is not as efficient as it was in the past. Like imagine certain state has lockdown, certain place has containment zone. So you are not -- you do not have a perfect system. Now imagine from Mumbai you go to Ahmedabad and from Ahmedabad whether you'll get a return load is not sure. But the freight rate is good up to Ahmedabad. And if you have to wait there for 2 or 3 days to get a return load, then it is not a very efficient system. Because of the restrictions, the overall supply chain is not as smooth, but whenever you are operating, you are making money. But you are not running your vehicle for 23, 24 days as it was in the past. You may be running it for 17 days. So that's where the collection efficiency will not be as same as it was. So the individual operator has an advantage because he's not dependent on driver. That is the big advantage. But the -- and all the manufacturing activities are also not started. Only -- even this manufacturing, only 30% to 40% of the laborers have come. So the -- unless the supply chain becomes perfectly seamless, then only the overall earning will be smooth throughout the month. And second, many of the customers, they are not parting away with full cash to us because there is uncertainty. They do not know what happens tomorrow, whether their area will come under contentment zone. So this uncertainty is making the people keep higher cash with them. In fact, that is -- we do feel that, that's good for them because if somebody is keeping higher cash and looking at their total percentage before paying the full amount, it's always good for us because customer is able to manage his business quite efficiently without really expecting further, what you call, support to run his operations. So we don't enforce further collection if a person wants to keep some cash for the uncertainty. So this will continue till the lockdown situation is totally lifted. So I feel maybe September, when the lockdown is totally lifted, the uncertainty will go, and people will part away with more earning.

Fair. And just one follow-up question. So in this MSME segment in which you have sanctioned INR 3,000 crores, this is essentially -- this is just now money which is now available to the truck operator to fund his next trip or something? Or how exactly does this work?

See, for funding next trip, we have been funding the customer for his fuel requirement. We have been funding him for his tire replacement. So that is apart. But this 20% is something additional for anyone for undertaking a repair or making the vehicle more efficient. So he can use it for any purpose, which -- to improve the efficacy of his business.

Right. So like you mentioned in the working capital loans, if it is going directly to the insurance company or something like that, is that kind of a mechanism in place even here as well? Or is it just disbursed to his bank account and it is then up to him to allocate it appropriately?

Yes, this amount will be given to him in his bank account.

Ladies and gentlemen, that was the last question. I'd now like to hand the conference over to Mr. Umesh Revankar for his closing comments. Over to you, sir.

Yes. Thank you. We have just come out -- we have just finished a most difficult quarter, I should say, because this quarter was totally under lockdown. And as we see lockdown is reopening, we're able to see a much better picture of the overall activities. The rural activities are definitely much better, and we expect same thing to happen to the other areas, semi -- urban areas in the month of September. And rains being normal, we expect the festive season should bring in better cheer to us. So next quarter, we should come out with much better results and also higher disbursement. Thank you very much. Catch up again next quarter.

Thank you, sir. Ladies and gentlemen, on behalf of Shriram Transport Finance, that concludes this conference call. Thank you for joining with us, and you may now disconnect your lines.