Shriram Finance Limited (511218) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Shriram Transport Finance Company Limited Q4 FY 2021 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Umesh Revankar, Vice Chairman and Managing Director. Thank you, and over to you, sir.

Yes. Thank you. Good morning, friends, and good evening to those who have joined from western part of the world. A warm welcome to all of you who joined this call. I hope all of you are healthy and safe in the confines of your home. Today, people who are joining with me are Parag Sharma, S. Sunder. And we have 3 more JMDs. We have 5 Joint Managing Directors in our company now. Mr. Sudarshan, Shigran and Nilesh. They are newly promoted and they take care of certain geography and certain functions. And Sanjay, who is our IR head. Let me first start with the economic and industry update, which directs our business. The Indian government continues its unlocked phase in January 2021, including the opening of educational institutions subject to respective state government guidelines. However, new strain of COVID-19 virus gave rise to cases in certain parts of the India, causing several states to impose restriction, including night curfew, weekend lockdown and restricted timing for shops, business and people movement. It is expected that in the government's initiative of world's largest vaccination program in January 2021, started with health care workers and subsequently rolled out to various age groups. And now it is open to all above 18 years. That will achieve large-scale immunity among the population and that should bring back the business into normal. The government announced several reform measures in India budget. The funding of national infrastructure pipeline was proposed to be increased for the purpose of enhancing CapEx in both simple and well, I say, government budget. It has announced that INR 11,000 crores -- 11,000 kilometers of highway corridor and 8,500 kilometers of other road would be awarded for the road building by March 2020 -- '22. Economic road corridors of more than 6,500 kilometers were proposed at an outlay of INR 227,000 crores. A vehicle scrapping policy for commercial vehicle older than 15 years was announced with specific discounts and road tax rebates on such scrapping. INR 20,000 crores was proposed to set up for a development finance institute for long-term infrastructure finance. On the industrial front, INR 1.97 crores is committed for period of 5 years on the PLI, that's Production Linked Incentive scheme, for supporting local manufacturing in the key sectors of automobile, electronics, medical, steel, telecom, food products, white goods and technical textiles. A mega investment textile park scheme was announced with promise of setting up 7 textile park over next 3 years. Support to MSME was doubled to INR 15,700 crores. Custom duty on several MSME manufactured items, including steel screws, plastic ware, leather, handy tax was increased to support local production. In agriculture, government announced and enhanced the anticipated target to INR 16.5 crores for the financial year 2022. Allocation to rural infrastructure development fund was increased to INR 40,000 crores against INR 30,000 crores earlier. This is expected to improve various rural infrastructure, including gross marketing infrastructure, cold storage, khadi industrial centers, education institute and custom duty on cotton and silk was increased to benefit farmers. The RB also made several positive statements and initiative. RB announced that incremental lending to NBFC would be covered under TLTRO on tax scheme, which will enable NBFC to act as key enablers in extending last mile credit. Priority sector lending, classification benefit for our bank for on lending to NBFC was extended by another 6 months till September 30, 2021. NABARD was provided with special liquidity facility of INR 25,000 crores for the purpose of supporting agriculture and rural non-pump activity. In manufacturing, industrial output was slightly negative with the index of -- index and production decreasing 1.6% in January and 3.6% in February due to slowdown in capital goods, consumer durables and mining in certain states where COVID spread increased. However, manufacturers continued increase in new orders as witnessed by PMI, the Purchasing Manufacture Index, rearing in February and March being 57.5% and 12.4%, respectively, signaling future growth. The GST collection were consistently above INR 100,000 crore mark and recorded 8%, 7% and 27% increase over January, February, March on yearly basis. The food vehicle production was higher by 2% at 3,033 lakh tonnes in FY '21 on year-on-year basis, reflecting strong rural economy and not really getting affected by COVID. Now coming to auto industry. The commercial vehicle sales increased by 42% in Q4 to 210,000 units against 147,000 units in the previous year. Heavy commercial vehicle led the demand this time increased by 58% on Q-on-Q basis, reflecting a pent-up demand and also reflecting demand in the construction activity. LCVs witnessed slight contraction, mainly due to the production and supply chain issue and waiting period. There are waiting period for the LCVs because the demand was higher. We continue to operate across all branches other than containment zone in certain pockets. Now I come to our -- the quarter performance. We got a disbursement of INR 14,973 crores, including INR 606 crores towards new vehicles and INR 14,205 crores for used vehicle in Q4 FY '21 as compared to disbursement of INR 10,868.56 crores in Q4 previous year. The AUM was INR 117,242 crores as of March compared to INR 109,749 crores in March 2020. The net interest income was INR 2,151 crores in Q4 against INR 1,961 crores in Q4 '20. The net interest margin was 6.8% against 6.85% in the previous year. A profit after tax was INR 754.93 crores compared to INR 223.38 crores in Q4 20. The EPS stood at INR 30.65 crores against INR 9.59 crores in the previous year. The collection was consistently good in the last quarter, recording 103.31% in Jan to March and 108.83% in the month of March. The Stage 3 NPA stood at 7.06 as compared to 8.36 in the previous year. Overall credit cost now in this quarter was 2.2%. And as on 31st March, 2.48%, which is much lesser than the guidance given in the beginning of the year, we gave a guidance of 2.7% to 2.8%. Our liquidity position stands at INR 17,121 crores as compared to INR 13,429 crores in January 2021. Coming to the COVID impact in the last couple of months, it has now spread to hinterland in certain pockets, especially in the Hindi [ park ] land. That also has impacted our staff and the relatives, resulting in lower productivity in the month of April and likely to be impacted in the month of May. However, other than the lockdown areas, containment zone, the movement of goods is seen as normal. There are issues in certain locations, in certain states, for the transporters on getting return lower, which we are addressing by giving a solution on mobile to the customer. And we are seeing utilization level of around 20 to 22 days per month. There are some idling in certain location wherever the family's member or the individual owner himself is infected with virus. Otherwise, we don't really see a large-scale idling anyway. The movement of the used vehicle prices and even used machinery prices is reasonably strong and moving upwards. With the COVID spread, the -- even the new vehicle sales have come down in April and likely to be lower for a couple of quarters. And that should help the used vehicle prices to remain strong. And demand seems to be quite good, even though transactions are less because many of the state [ argues ] are not functioning fully. And because of that, the buying selling transactions are not getting recorded, and we are not able to complete our lending activity -- lending transaction. The rating of the -- the rating, which was last quarter than in the last COVID situation, which was reduced, which was changed to negative outlook, now has become stable. The cost-to-income remained stable in the current year vis-à-vis previous year. But we expect a marginal increase to around 23% -- to around 24% because we have started hiring from last September. So there will be, I think, increased staff in the next couple of years. And we would be adding at least another 300 branches in the next couple of years. Restructuring of assets, which was allowed to the NBFC. We initially made -- made arrangement and we approved restructuring of around INR 2,200 crores. But finally, we ended with only INR 590 crores restructuring. Only the staff transportation and school buses, they have taken the restructuring and some public transporting individuals. On technology, we are continuously working on building a strong versatile mobile platform, wherein all products and services are available to customers and to our front line team. We are also trying to work on giving a written load to our customers and also making available on the -- making the load available on the platform so that this activity can move easily. There is not much update on the merger now. We are still evaluating all possibilities, and we would like this COVID situation to improve to give any definite clarity on the merger. I hope you have received investor update, which is also available on our website as well as published on the stock exchange. Now I request the moderator to open for question and answer. Oh, okay. We have some update from my CFO, Mr. Parag Sharma. I would like now Parag to join the call. Parag?

Hello, everyone. I wanted to give an update regarding liquidity position and also the borrowing from various sources. We have well diversified liability profile. And during the quarter and also for the year, we were able to tap all sources. Via term loans, what we borrowed was close to around INR 4,000 crores, INR 3,900 crores to be precise. And for the full year, we had more than INR 10,000 crores of term loan borrowing. Dollar bond, which we borrowed for the financial year first time in January, of $500 million, we tapped it in the month of March. And the total borrowing for the full year under dollar bond was INR 5,000 crores in INR terms, $725 million in dollar terms. The capital market, which was slightly closed or liquidity constraints were there during the first half of the year, opened up subsequently. And that also we have tapped up to the extent of INR 3,700 crores in the quarter and for the full year at INR 5,000 crores. Securitization continues because the demand continues because of priority sector benefit. And this also came up largely in the second half of the year. For the full year, we did a securitization to the extent of INR 13,000 crores and the last quarter was INR 4,600 crores. Retail deposits, we have, I think, we'll be the only company which has reduced rate from April onwards by around 10 to 15 basis points. That also continues to be very strong. And for the quarter, we mobilized INR 2,300-odd-crores in retail deposit. As you are aware, we also did a rights issue in the month of -- in July, August of INR 4,500 crores. This was the overall borrowing for the year. And all the sources are at around 20%, 25%, be it term loans, be it securitization or be it external commercial borrowing. Retail depositors are growing proportion, which has now crossed 15% of overall liability, and we do expect that to further go up. We also indicated that the costs will come down. The interest cost for the company will come down. And it has come down for the quarter by around 20 basis points. It is less than 9 now. And we do expect for maybe 1 more quarter, it can slightly improve. However, since we are carrying excess liquidity buffer now, we'd get large mobilization in the month of March on dollar bond, also from domestic bond, which is slightly higher which is pulling up overall cost. We -- the capital market sources continue to be supportive now. And in the month of April also, we have done domestic bond raise. I think one more thing to highlight was the dividend, the final dividend, we have declared of INR 6 with the overall dividend-paying 180%, and the payout ratio will be closer to around 18-odd-percent. I think with this, I go back to Mr. Revankar for any further comments to be made by other participants.

Mr. Sunder will add a few general points.

Good morning, everyone. As updated in the last previous quarter, the exhibition amount of INR 231.28 crores, which was claimed by -- from the company to the government. That we have received on -- in the quarter ended March, so that has been credited to our financials. And based on the Supreme Court order in the last week of March, wherein the other -- the borrowers who were covered in the previous order. So they needed to be compensated, and that we have taken a hit in our P&L financials. The amount comes to INR 36.54 crores. And in the previous call, we had updated that the mill collection customers are close to 9,600 borrowers and the exposure was INR 112 crores. That has come down to 4,482 borrowers as of March 31, and the exposure has come down to INR 58.22 crores. And the company has fully provided for all this -- the entire exposure of INR 58.22 in our financials. And one more update on the ECLGS. We have extended it to 79,943 borrowers amounting to INR 720 crores. And as Mr. Revankar had updated in his thing, the restructured -- onetime restructuring we extended to INR 590 crores worth of portfolio. And on the provisioning front, the Stage 3 has been stable compared to the previous quarter at 7.06% as against 7.11% in the December quarter. And the net State 3 is at 4.22% as against 4.31% in the previous quarter. And the coverage ratio continues to be in the range of 42%. And the Stage 1 assets were 81.04% as against 80.78% in the previous quarter. Stage 2 was at 11.9% as against 12.11% in the previous quarter. And we maintained a coverage ratio of 3.25% on Stage 1 assets and 9.7% on the Stage 2 assets. The probability of default for Stage 1 was 7.38%. And for Stage 2, it was 22.24%. And the loss given default was 43.49% as against 43.08% in the previous quarter. And we continue to make COVID-related provision in the current quarter also, which was INR 84 crores. And the cumulative provision, which we have been making quarter-on-quarter from March 2020 quarter, it stands now at INR 2,591.48 crores. And as regards the provision that we are holding, as for the RBI recommended IRAC norms, we are supposed to hold INR 2,798 crores. As again said, we are holding INR 7,939 crores after the NDAS. And hence, there's an excess provision of INR 5,140 crores compared to the regulatory requirement. The capital equity is stable at 19.94% in Tier 1 and 2.56% in the Tier 2, totaling to 22.5%. And that's -- and okay. Cost income has been stable compared to the previous quarter. We have taken a onetime hit of close to INR 22 crores, which the Board has decided to shift to all the employees of the company as a token of appreciation for their efforts during the COVID pandemic. And apart from this, I don't have anything further to add that. That's it for me, Mr. Revankar.

Now we'll open for Q&A, please.

[Operator Instructions] The first question is from the line of Rikin Shah from Crédit Suisse.

I have 2 questions. First one is on the disbursement. Of course, they were a strong Q-o-Q and Y-o-Y. But would it be helpful if you could give a sense on how the disbursements were in terms of number of contracts or volumes? And the second question is on the tech platform that you are building, which is enabling your customers to get some return on. Maybe if you could elaborate a bit more on it, how are you doing it? And what kind of improvements we have seen after rolling this out to our customers? That will be helpful.

I see, first questions, Mr. Sanjay will be in touch with you, giving the details on numbers. And on second questions, we have been working for some time on various road placement companies and the initiative like you have heard a company like BlackBuck and all. There are many such platforms, but they're all local geographies. Some are in Bangalore, some are in Hyderabad, some are in Chennai. So we are -- they're all small, and they are not really scaled up all India. So we are now trying to get them on board and put them in our mobile application so that our customer can reach out to those customers and look at what are the loads available to them. So that's what we are trying to do. It is excise. We are -- also had invested in a start-up called White Tiger. So -- we're only is trying to do a bit on that. So there is no All India scalable model or platform right now. But we are trying to do our best to see that customer is benefiting.

Okay. And can I get the disbursement number from Sanjay now or following the call?

Following call, Rikin.

The next question is from the line of Kashyap Jhaveri from Emkay Investment Managers.

Congratulations on a really good set of numbers. I have got 2 questions. One, in your presentation where you have highlighted the collection for quarter 3 and quarter 4 at about 97.48 and 103.31. What would be this number excluding the overdues on both numerator as well as denominator?

This number, you can take it from Sanjay post the call.

Sure. And second question is in terms of your initial commentary about the new organizational structure, where now we have appointed regional heads under the JMD designation. How does that function? Are they responsible for every function in their geographies or are they responsible only for growth and recovery would be still separate? How does it work?

They are responsible for all the activities. And they will also look at new possibilities and new initiatives, including digital initiatives. So they were in the system for more than 25 years. They were handling certain geographies. Now we have given them larger geographies. And also there, we have given them that freedom to operate on all functions. Plus the new initiative, what we can do. So that's what we are looking at, including this lower placement or the fuel credit which we have given or the tire credit, all those things, which we would like to get deeper into the -- each of the market and make it available for everyone. So even on digitization, whatever best we can do to give a seamless experience to the customer. That also is being worked. So basically, they were -- all the 3 -- all the 3 people were with us for more than 25 years, and they're part of the company and they understand the business very much.

And just a clarification on that. I mean is this eventually fit -- does this eventually fit into any succession planning at Shriram Transport or the nomenclature is just as such?

Yes. It is a succession plan. So including Mr. Parag and Sunder, there are 5 and these 3 gentlemen. There are 5 JMDs now.

The next question is from the line of Abhiram Iyer from Deutsche CIB Center.

Yes. First, I want to congratulate the company for good set of results. I want to -- there are 2 questions that I have. The first thing is I want to understand what the company's plans for the cash balances is. Is the company looking to deploy the entire cash that they've accumulated during this quarter? Or are they looking for some buybacks of debt in that regard? The second question I have is in terms of what has been the collection efficiency for the month of April, any tentative preliminary figures for this month?

See, the excess liquidity, in fact, was a planned one. Last year itself, the Board has directed us to have liquidity up to 3x of lending. And therefore, the higher liquidity is maintained. And we don't have any plans to buy back any debt or anything. And we feel that there is a pent-up demand coming quickly. Post the vaccination, I feel the pent-up demand will start coming in the month of June. And we should be quite busy post that, and that's what we feel. As far as April collection is concerned, as on 27th, it is 91.26%. And may not improve much towards the month end because the containment zones have increased. But that itself is reasonably good, I should say.

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

Congratulations from this set of numbers. Sir, I had a couple of questions. First one is, if you can walk us through the -- hello, am I audible?

Yes, yes, you're audible. But last one was -- we couldn't hear?

Okay. So can you walk us through the GNPA movement with respect to addition write-offs and recoveries?

You can take it offline from Sanjay.

Sure. Sir, secondly, so what difference we are doing in terms of asset quality? Sir, you already mentioned on correction efficiency, which have been improving. But if I compare our asset quality per se with competition, we have been only improving our GNPAs quarter-on-quarter, although marginally, and we have maintained a 7% ballpark level. So what is it that we are doing differently, which I believe your competition should also emulate to others and mentoring this kind of stability now just call it, if you could just throw some light?

Yes. See, the business models are different for different companies. As far as we are concerned, we source business directly from our employee. Our relationship executive, who does direct a tax-based onboarding of a customer. Then he remains in touch with the customer. And all our customers are earn and pay. They don't have stable cash flow otherwise. So they earn and they pay. And if there is challenges in earning, then this payment gets delayed or maybe part payment comes. So the highly touch-based model with good support to the customer given, especially fuel credit, tire credit and if there is any engine repair, that credit. So we are accessible to the customer all the time. And any time you need any sort of help in getting further credit, we are giving him. We are not encouraging him to borrow from the market. Because alternative available to my customer. If I don't give him credit, at borrowing at much high -- what call, high cost borrowing from the market. That will fail his business, so which we are doing the -- which we are trying to help the customer by being in touch with him. So that's really helping us in this difficult time. And our people, even in the COVID time, when they were in touch with the customer, physical contact. But wherever the physical contract was not possible, they were in touch with on mobile and help them in doing digital transaction. So every customer today, we are trying to see whether we can onboard him on a digital platform so that his business can run smoothly whether he is making the payment to us or we give him any further credit to run his business smoothly.

The next question is from the line of [ Raful ] Kumar from Diamond Asia.

So just 2 observations. One, you mentioned that this time, the white spread has -- the virus spread has gone to hinterland, which was not the case last time when it happened, and the customers are more earn and pay kind of customers. So do you understand that given the value momentum of spaces in India to peak out, the impact to be much more severe than last year?

There is a totally different perspective. Last year, there was a total lockdown. Even village to village, district to district movement was curtailed in the first 30 days. Then there was unlocking over the period. That created a big challenge for nonessential goods movement. Essentials were moving with the restricted permission from the police and authorities. But this time around, there's no such restriction for goods movement, whether it is essential or nonessential, so highways are free. So therefore, I feel the impact -- economic impact would be much lower, even though the virus infection to the population and as a percentage to our employee and our customer, that could have some challenge. And as long as the mortality is controlled or within certain small numbers, we should be able to do quite well.

Sure. That's good to know. And sir, second question would be on number of employees. As you said that the model is a lot more tuck-in to being very close to the customer. In the last 3, 4 quarters, I have seen the number of employees have gone down by 15% from 28,000 to 25,000. What is the reason of such sharp drop in number of employees?

See, we stopped the hiring in the last couple of years. And that's -- therefore, wherever there was people left, we did not add people. We were a little careful on our cost. Then also, we focused on increasing the productivity. So the entire focus has come on making the digital transaction, which will increase the productivity of both employee and the customer. So that is helping us a lot. But we have started recruiting now. From October onwards, we have started recruiting. We have recruited more than 800 people. And we also take them as apprentice in the first 6 months, so they will not come on the role directly. Then -- so a number of people will be added in the next 2 years. We should go back to 28,000 in the next couple of years as we are also going to add few branches.

Sir, one last small question. What is the size of this tire credit and fuel credit in terms of overall size of the book? So what -- how large are these ancillary funding books for you?

See, these are all very short-term in nature. It is -- fuel credit is average 15 days to 20 days, and tire credit are basically 6 months. So the amount will not be as significant.

Total instruments and everything put together are 2,200 -- INR 2,720 crores.

It is around -- it is INR 2,700 crores, including insurance premium. We help the customer to buy insurance through installment. So that also included. Insurance is 1 year. And the tire is 6 months. Fuel credit is 15 days. So it will not become a large portion. So INR 2,700 crores. So it will be around -- maximum, it will be 3% -- 2% to 3%.

The next question is from the line of Anand Bhavnani from White Oak Capital.

Sir, just wish to understand your thought process on the merger. You -- in the opening remarks, eluded that you're waiting for things to stabilize. Can you give us 2 or 3 things that you are monitoring to kind of then take a call on the merger, can you elaborate a bit more on your thought processes so that we can better have a sense of when and in what form and shape can this happen?

See, there are 2 significant development in the last maybe 6 months from the RBI. One is the scale-based approach of the RBI. And the second one is the NBFC, the discussion paper on NBFC converting into bank. So we are just waiting for clarity on both this from the RBI, that even if RBI itself, it is at a discussion level and they're seeking the opinion. So once we have some clarity on that, then probably we'll look at whether the merger makes sense. And also, our main purpose of merger was to build strategy and synergy among all the group company. If you have a synergy, if you're able to bring down our cost of operation or bring down our borrowing costs or improve our efficiency, improve our productivity and give better returns to the shareholder, then only we will look at a merger. So that is the total thought process in the group.

Okay. But do you have inclinations towards a merger or you're neutral or you have -- you don't wish to grow merger out. So what is your bias? There are obviously synergies given the lines of business are similar. So there is -- is it safe to say the natural course of action is to go towards the merger?

So see, right now, I cannot comment. So many moving factors here. Initially, we thought a merger would make good sense because we can give a better return to the share. But with other development being there, we would like to wait and watch. And otherwise, the -- both the companies have enough scope to grow within their existing business clients. So we are not in a hurry.

Sure. And sir, my second question is just on our dividend policy. Just trying to understand a bit better. You did the rights issue early on in the year to kind of raise money. And then at the end of the year, we are having a payout ratio like 18%. So do you -- don't see any growth opportunities? Why did you kind of feel the need for such a high payout ratio? You were netting base money just about 7, 8 months back. So can you kind of reconcile the 2 actions? One, what today's money with your rights issues and then second is to pay out a very significantly higher payout ratio among the financial services companies in this particular year?

There is no link between raising equity and higher payout ratio. We feel that any company which is doing well has to give -- have a good payout to the shareholder because shareholders not only looking at depreciation, he also looks at dividend. So that is one part. And as far as the rights issue is concerned, during the first COVID wave, we wanted to have additional support because the rating agencies and lenders, they also wanted to know company's ability to raise the equity at this kind of -- at that kind of situation because when everything is good, the rating agencies and the lending institution, they would like to see the confidence of the shareholders. So that's the reason we went into the market and raised rights. And it was what call our shareholders participated very enthusiastically, I should say. And that really helped us to uplift the mood of the lender and the rating agency. And that's reflected in the rating agency now going back on their negative watch and putting it as stable.

And sir, my last question, you alluded one of the questions by department head, there is the joint managing directors is a part of a succession plan that is now being put into place? Is -- I mean are there any further actions which you should see as the succession plan is carried forward? Or is it done at this point in time? So can you give us some more color on succession planning and what more should we expect?

The succession plan is something which we start working on -- we are now started working on. So there are 5 JMVs now. They are all looking at various functions and geographies. The Board will take a call at the right time. So we are also looking at overall group perspective. Probably, I would like to inform you that Shriram Ownership Trust is a body where -- from where the people are allocated. The resources, human resources, are allocated to the various company. And there have been -- we need to look at all these executives who have been there with us for a long time and give them right opportunity at the right time. So that's the outlook. And our -- the senior team also will have to put more energy in building new businesses, new opportunities. And therefore, there will be some reallocation at the appropriate time. So right now, it is in the process, and it may take awhile for doing the, what I call, right allocation of resources, human resources. So I can only say that it is in the process. And the next couple of years, we can see that there will be a new set of executives emerging in the group, not only in the Shriram Transport, in the group, at various companies' level.

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

Most of my questions are answered, but I just have some clarification. So firstly, a question on the liquidity buffer, which has almost doubled Q-o-Q. Did you say that you're going to keep it at 3 months of lending at all times?

No, till September. The Board has directed us last year that we should build a buffer up to 3x. So until September, we will be keeping higher liquidity. And as business volume goes up and the environment becomes better, then probably we'll relax it.

But given that collection efficiency has remained at close to 100% for the last half year, what really are the doubts now? Or is it because of the second wave?

No, no, there is no doubt. Yes, second wave is definitely something we are watching very carefully. And -- but we feel, because in our Board, we have imminent bankers, Managing Director -- Retired Managing Director from the Central Bank of India and SBA. And they also give us that kind of a guidance. They feel that having a liquidity buffer would always help us. And at the right time, we'll use that excess liquidity for the purpose of improving our profitability and shareholders' benefit.

Okay. Got it. And sir, if you could just remind me, in the first half of the year, have we given moratorium to NPL customers also? Or was it just standard customers? Because your competitors have taken different approaches. So I just wanted to -- if you could remind me what approach we have taken.

So we had given only to the performing customers.

Okay. Only performing as of Feb 2020?

Yes.

Yes. Yes. Correct.

Got it. Got it. And sir, just last question from my end, what percentage of our customers would have 2 loans from us like a regular truck loan as well as tire loan or any of the other add-on loans?

If you look at custom -- at least 60% of a customer will have some loan, especially insurance. Whenever his insurance comes for a renewal, he takes it from us on an installment basis rather than on paying from the -- paying cash and buying in the market. That's one. The tire and fuel is new. When it is new, they're there for long, but it is not really widespread. The utilization levels are not really high as per the -- because we feel that fuel requirement for anyone will be very high. So we need to make this experience better. We're also talking to the fuel companies. We have tied up with all 3 fuel companies, BPCL, HPCL and IOC. Now our reach is all India. Earlier, we had initially kind of only HPCL. Then we added BPCL. Then last few months back, we added IOC. So since we have now reach across the country, we can now increase it to much higher level. So -- and on tire, we have a tie-up with MRF, then see it. As we have attach with other companies, we'll be able to reach to many more. So this is all work in progress. And we expect -- we want all our customers to take some additional product from us, so that the -- what I call loyalty factor improves.

Okay. That makes sense. And just lastly, one of our competitors on the recent con call mentioned that with the second wave, some of their employees are also feeling a bit hesitant to go on the field and be out there. Are we also experiencing such stuff with our employees or maybe even our customer? I know it's too early days, but still if you could give some commentary, that will be helpful.

So per se, I don't think our employees are hesitating. But we are cautioning them. We want them to avoid physical contact as much as possible. Because since they are sourcing our customer directly, they know their mobile number. They know their family members' number or the area in which they work. So our people know our customer and the guarantor of the customer well. So we don't have to really go physically to meet. So that's what we are trying to say. So by increasing the digital play, we can increase the productivity without really losing the physical support of -- or the -- physically going and meeting the customers. So we want to change the way we are working so that the physical contacts come down as much as possible. And most of the transaction becomes contactless. It's only to help both customer and to employee. And I don't see much -- any hesitancy, I've not got any feedback on hesitancy from my customer -- my employee.

The next question is from the line of Avinash Singh from [indiscernible] Capital.

Congratulations on the good set of numbers. I could see that there is lot of traction the company is gaining from the rural side of the business as compared to the urban. So sir, can you provide any commentary related to the seeing why there is a good traction on the rural side as compared to the urban side of the market?

Increasingly, we have been expanding in semi-urban rural area in the last 6, 7 years. If you look at -- our growth has been mostly in this bed. And we feel that in the core city, we may not have the customer of choice because individual operator who makes earning for himself and also who is a farmer, our SME manufacturer, these kind of customers are mostly there in the hinterland. So it is a conscious decision from us to move away from the large city and to be in the smaller towns and rural area.

Is it to -- is it also to say that rural customers are more disciplined as compared to the urban customer? Have you seen any [indiscernible]?

No. What we feel is that rural customers more than disciplined, it is easy to reach them. They don't go beyond their geographical area limits. So we can easily reach out to them, meet them. So this approach is much easier than in the urban areas because urban areas, people move houses and people also move places very fast. So it becomes a little challenging at certain times. So in the rural, you don't have that kind of issues or challenges.

Okay. Sir, how many branches you're planning to add in FY '22?

'22, we will add another 150 branches. We have 800 rural centers, which, as and when we are able to scale it, we'll add it to the branch.

Okay. And sir, just one follow-up question. I just wanted to get the numbers on the NPAs, like how much is the write-off? How much is a [indiscernible] and other numbers. If you can get -- provide those numbers?

Sunder, is it ready?

It is there. Okay. Write-off is 7 -- 1 second. The current quarter write-off -- the total credit cost is INR 724 crores in the current quarter, out of which write-off is INR 531 crores and NPA -- ECL provision is INR 193 crores.

And how much is the [indiscernible]?

That we can take it offline. Sanjay will provide the figure.

The next question is from the line of Aditya Jain from Citigroup.

Just a clarification on the lower NIM Q-on-Q. So is the reported NIM taking into account the interest reversal of INR 6.5 crores? Or is the lower Q-o-Q mainly driven by more liquidity?

Okay. This 35 -- INR 36 crores reversal also has contributed, plus since we are carrying excess liquidity, that also has an impact on the lower NIMs.

Got it. Okay. And in the restructuring amount, is there hope to have more closing in the coming quarters? So you've mentioned in the presentation, but out of the total, which was initiated in December, fairly less amount has been done. So are you expecting anything close to the original amount to get restructured or will we see much lower?

No. See, this amount will be the final amount. There will be no further onetime restructuring option available. So the INR 590 crores is the final one. It will not increase.

Got it. Lastly, Stage 2 continues to be quite low. Are there any temporary factors helping it? Or does it look like this will be the likely stable number from here?

This should be the likely stable number going forward also.

The next question is from the line of Shubhranshu Mishra from Systematix.

Most of my questions have been answered. If there can be some guidance given for how do we look at the growth, especially in terms of disbursements? This can be split into new MUs for FY '22. And how do we look at AUM growth in FY '22?

The AUM growth would be anywhere between -- it has been double digit, 10% to 12% is what we are giving a broad guidelines. Simply the second wave has hit April and likely to hit May. The new vehicle sales will come down significantly. So we expected new vehicle to have a strong demand. But since it is -- it would be -- it is likely to be postponed for some time. The pent-up demand will come in the second half. So I feel the post-vaccination when people are becoming confident about the business scenario, new vehicle demand will go up. So our disbursement would remain broadly in the range of the -- our third quarter disbursement, wherein our disbursement was around INR 300 crores for new vehicle and around INR 12,000 crores for used vehicle. So that should be the range is what I see in the first 2 quarters. After that, probably it may take -- improve, especially new vehicle would improve.

Right. So we are -- is it okay if we can analyze this or it will be slightly more than what we are looking at, more than third quarter run rate for the entire year?

I do not get you.

Third quarter, are you asking us to analyze it for FY '22, if I get it right?

Yes. Third quarter number, I feel like that should be the number for first 2 quarters this year around and then already improve in the third and fourth quarter.

Got it. Sir, and also, my last question would be around OpEx. We have the lowest cost vehicle finance in the NBFC space versus most of our competitors. Sir, what is the secret sauce behind it, sir? I mean how are we more successful with such a large book and a large workforce of almost 25,000 people? How do we manage to maintain the cost at these levels? And how do we guide for this in FY '22?

See, as of now, we don't have any outsourcing of any business, any activity. Therefore, we are able to manage everything in-house at a much lower cost. And we also take fresh graduates and train them. And that also reduces the cost. If you take from the market, then the cost is high. And also the productivity level will be almost same. So since we take people, fresh graduates, start them as a apprentice and slowly graduate them. So we are able to manage at a very cheap cost, a very low cost. Plus, I should say that not giving any sourcing free or outsourcing any other activity is helping us to manage at low cost.

Right, sir. And guidance for FY '22, sir, for OpEx already kind of OpEx nature?

There will be a marginal increase in cost-to-income ratio, which is 22% now. It may go to 23% or 24% at the max because we are hiring more number of people. And that is only reason for the increase in OpEx because otherwise it will not go more than 24% cost-to-income ratio.

The next question is from the line of Umang Shah from HSBC Securities.

Congratulations on a good quarter, sir. So we have exited FY '21 on a very strong growth. And in terms of provisions, clearly, we are very well provided now. How should we defend the credit cost in FY '22?

I say, credit cost in FY '22 is little early to say. But still, I feel we should be able to maintain at 2% level broadly. But if we have to give a higher provision because whatever we needed to make provision for the older portfolio, the last year's portfolio, which is done. But before last year, that is -- as of last March. But for the fresh portfolio, what we have, we would like to wait for 1 or 2 months. We also would like to do a stress test and try to understand whether we need to give any further provisioning. So it depends upon that. Maybe we'll be able to -- we would be able to tell exactly in the end of first quarter.

Okay. Sure. And sir, the COVID-related provisions would be a part of our ECL provisions, right? So it will be sitting across either Stage 1, 2 or 3 provisions?

Yes, correct.

Okay. And sir, my last clarification, which I want. There is a -- the Board has approved equity ranging of about INR 4,000 crores. I mean our Tier 1 ratio is very strong at about 20%. So is it just an enabling approval? Or do we intend to raise equity in FY '22?

This was just enabling -- that's all. For any opportunities or any requirement at that time.

The next question is from the line of Nishant Shah from Macquarie.

Congrats on the good set of numbers. Sir, you've been speaking about adding branches, adding staff. I also see you've like based a lot of borrowings towards -- seems like the end of the quarter. What -- how should we think about growth for the coming year? Like any kind of growth guidance that you can give. Like for the last 2 years, we've been at like single-digit kind of AUM growth. Do we return to the kind of mid- or high teens this year, FY '22? Any comments around that would be good.

We see a lot of pent-up demand. Now it is postponed a little. Pent-up demand, mostly from the infra-related and the mining-related because the -- after 50 years, government also has come out with the new mining, what call, act and which is opened up for the private. So that should really be -- or boosting the economy in certain states, which is dependent on mining. And infra activities across all India is going on full scale. And the real estate activity also has improved. All the cities have seen -- witnessed good sale of units. I feel, therefore, the demand for commercial vehicle, it get -- it may get postponed a little because of the current second wave. But the pent-up demand is there. And scrapping policy will definitely add further demand for newer vehicle. It may not create a demand for new vehicle directly, but people will upgrade from more than 15 years old vehicle to 5, 6 years old vehicle over the period. And that will result in new vehicle ultimately. So I feel next 3 years, the demand for commercial vehicle and construction equipment would be reasonably strong. So we feel that double-digit growth is something possibility or is definitely possible. So we are looking at 10% to 12% growth CAGR for next 3 years.

Okay. 10% to 12%. And just one more question. Incrementally, for the bonds that you would have raised during, say, the month of March or April, what has been the yield? What has been the coupon that you're paying? And what percentage of your overall external borrowings mature this year in FY '22, so that they would be replaced at a lower cost?

The ECB, which we raised towards the end of March. We -- the coupon rate was 4.2%. And maturity, any maturity?

Parag, you'll take it? Parag?

Yes, the domestic bonds what we have raised is 1 large one, this was INR 3,000-odd-crores for 10 years at 8%. Rest of the bonds have been slightly lower, but duration also has been lower, 2 or 3 years only. So that comes to maturity, there is nothing maturing at of now. The earliest maturity is next year. Nothing which is maturing in the current financial year.

No, I meant maturing some from the -- not from the new bonds raised.

Yes, I'm talking about the existing bond that we're showing in the current financial year.

Okay. And the ECB, you've mentioned 4.5%, what would be the India-landed cost, like including the hedging costs?

Yes. So what we did was 4.4% in January. And March, the effective yield was 4.2%. Landed cost is around 9%.

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

If you look at the -- some of the larger NBFCs and HFCs, the incremental cost seems to have clearly bottomed out. What is your experience? And what is your guidance in terms of the -- where your weighted average funding costs will move over the next couple of months?

Nischint, if you remember, our costs were slightly higher previously and also some of the sources were not that -- in the industry capital markets will not that higher. So we are getting some benefit out of here. so we do expect for next quarter also, the incremental cost of borrowing to come down slightly, maybe 10 to 15 basis point it should come down. But as we mentioned in the opening commentation, the cost of excess liquidity what we are carrying, you may not be able to get whole benefit of that yet. There will be a drag of excess liquidity, what is there. Having said that, there's a large liquidity what we garnered in the month of March itself, so that's why the overall liquidity buffer is INR 17,000-odd crores, but it can marginally come down on next quarter and subsequent quarter. But we'll try to still maintain at the December level, which was around INR 13,000 crores plus. So we'll try to maintain a slightly higher level, but not at the current level. Because this was only because of excess borrowing in the month of March.

So your -- if your weighted average cost of funding is coming down and your liquidity is going down as well, regarding the benefit of -- I mean benefit of your yield should get reflected in the margins, right? Unless you are kind of changing rates on the asset side.

Correct. There is some benefit [indiscernible]

Sure. And was there any impact of the RBI directive on this reversal of interest on interest?

We have taken a hit of INR 36 crores in the quarter ended March.

Sure. And that goes in the interest income line or?

It comes in the interest income line.

The next question is from the line of Ritika from Ocean Dial.

Sir, just one data point. You mentioned that the collection efficiency in April was 91%, if I heard it correctly. What is it generally, if not for COVID. Like what has been the experience generally in the month of April?

I cannot specifically -- April, which is difficult to say. But normally, our collection efficiency every month will be around 96% to 97%.

The next question is from the line of John Lim from Maybank Asset Management.

I just wanted to ask about the current situation. Given that -- I know you mentioned that there's a lot of pent-up demand. And I think you guys, you had plans to expand given the pent-up demand and all that. But what is the worst-case scenario? I mean let's say, the infections do rise so much that there's another lockdown. Does the company has any contingency plans on that? And the last time that this thing happened last year, actually, not about asking about, in the case, if you cannot -- there's no -- the collection rate is very low. Then how much cash you have on hand to allow you to continue operations without having to rely too much on current collections? Could you give us a sense on how long can the company survive if your collection rate is impacted -- going to be impacted as bad as the previous lockdown last year?

No, if you look at the previous lockdown, it was a nationwide lockdown. And first 2 months before unlocking, it took time. But the current phase, there is no lockdown all India. So goods movement is reasonably free, free from any kind of obstacles. So we really don't think of the challenges in collection. However, if it is a worst-case scenario, then if collection drops instead of maybe 97% to around 90%, there will be, to that extent, shortfall will be there, around 10% apt to maybe 10% shortfall in a month, which we should be able to recover in the subsequent month. So -- but as it is, we don't really anticipate such. And the liquidity buffer, as I said in the beginning, we have a 3-month disbursement liquidity. So the worst, okay, even the disbursement will go slow. So definitely, the equity levels will be very high. That will continue to remain high because disbursement will be lesser and we will have more cash. So I don't really see any challenges on liquidity in any short period. So Parag, would you like to add anything?

I think the way the liquidity is, one is the disbursement side, if you look at that. Other way to look at managing liabilities and with no collection happening also, liabilities can easily be met till August, August end. So liabilities are fully covered in spite of no collections coming in. But collections are good. So we don't foresee that challenge at all.

Okay. So just to clarify, does it mean that you have enough cash to be operating for 3 months in the worst-case scenario or longer than that? It has low collection but of course, also low disbursement the amount of money that you have on hand for your OpEx.

OpEx and liabilities can be managed till August end with the current liquidity what we have in case we have 0 collection. If we are getting collection, which is 90%-plus now, we can easily sail through for the entire year is what we are saying without borrowing anything.

Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Umesh Revankar for closing comments.

Yes. Thank you. We feel that with vaccination drive and everyone getting vaccinated, we should be even -- with the one jab by May end, we should be able to sail through very comfortably. When I say one jab, I'm talking about my employees and customers who -- if that affects our group, we're able to get one and complete the second jab by June, July. We should be easily able to run the business as efficiently as last quarter. And this year, we should be able to really see growth is what I believe strongly because pent-up demand is visible, which got postponed, and it is always possible to catch up. So with this, we would like to meet very optimistically in the next quarter call. Thank you very much for joining.

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