Shriram Finance Limited (511218) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Shriram Group Conference Call. We have with us today Mr. D.V. Ravi, Managing Director, Shriram Capital; Mr. Umesh Revankar, Vice Chairman and MD, Shriram Transport, Mr. Y.S. Chakravarti, MD and CEO, Shriram City Union Finance. [Operator Instructions] I would now like to hand the conference over to Mr. Umesh Revankar, Vice Chairman and MD, Shriram Transport. Thank you, and over to you.

Yes. Thank you. Good evening all. Good morning to the people who have joined from Europe and the U.S. Today, we have very important announcement to make. And today is a very momentous day in the history of Shriram Group. Earlier today, in the afternoon, the Boards of Shriram Transport Finance, Shriram City Union Finance and Shriram Capital met wherein they unanimously approved a proposal to merge 3 companies, paving a way for creating what would be largest retail NBFC in the country. In this composite scheme, Shriram Capital Limited, the promoter entity of the group, will merge with Shriram Transport post demerger of all other businesses of the group, namely, life insurance, general insurance and all nonlending noninsurance activities. We would soon be submitting the proposal to shareholders of all 3 entities and the relevant resolutors for their consideration. As and when approved, the merged entity will be called Shriram Finance Limited. The merged entity would have a combined AUM of INR 1,50,000 crore and customer base over 2.1 crores, a branch and sales network of over 3,500 members. All of these would be serviced by the team of a strong 50,000 employees. The combined entity would be the largest retail finance NBFC in the country. And it would emerge as: #1 commercial vehicle financier in the country; #1 2-wheeler finance company. Recently, it reached a milestone of funding INR 1 crore per 2-wheeler; a leading NBFC in the small finance -- enterprise finance and SME business; gold loan company with widest distribution across all the states. This will in essence make us a leading player in all segments that we choose to operate in. The merger will help us achieve significant scale and growth for all our businesses. The synergies will result in incremental positive impact on our bottom line of around 10% post merger. This benefit we have measured in the sense in the -- both the companies put together. We have a senior leadership team combining -- coming together. We have made certain calculation built on that. We will have a larger, faster growth because we would be able to sell each other company's product to the consumers, which otherwise, today, we were not doing that. We'll also have higher wallet share of the customer by selling insurance products. We should also have a cost benefit in funds, because larger treasury, we'll be able to rationalize certain costs and would be able to have a better talking terms with the banks and lenders. And we also believe the multiproduct company, because earlier STFC was a monoline company and always subjected to some kind of cyclical pressure and the multiproduct company will be countercyclical and will have an advantage of multi-engine firing at all the time, giving a better, consistent bottom line. And we feel that should help us to get a -- upgrade in our rating. There will be a significant focus on improving the products' process through the use of technology. We believe the combined entity will be able to invest more on technology because of the bigger base. And also, data analytics and big data mining would be useful for creating better, more customized product and better fee income for the company. So the -- we are also working on Super App, [ Shriram 1 ], which will help us to do that. And ultimately, our digital journey would be onboarding more and more customers. Right now, our customer being mostly in the unbanked and underbanked segment. They need a certain assistance to be part of a digital journey. But over the period, we feel most of the product and services will be do-it-yourself, with the superior experience on the digital journey. That should help us to grow our business much faster and better service and better bottom line. And the other big advantage that we have is we have almost similar HR practices in both the companies. And that should help us to integrate our HR function and also bring together all the employees on single scales across. And also, the advantage is that we are in a similar technology platform or common technology platform. And that, again, would help us to integrate much faster without any additional cost. So there would be overall benefit in terms of ability to acquire new customers, retain new customers and also to provide additional products and services. This we've all factored in, including the cost involved in the integration, like stamp duty taxes, et cetera. With all this factored in, we feel that first 2 years, the bottom line would be -- the incremental increase in bottom line would be around 10% for the combined entity. There will be a change in the leadership level in the sense. Mr. Chakravarti, presently MD and CEO of SCUF, immediately has been inducted into Shriram Transport Board as additional director. Mr. Parag Sharma, who is the CFO -- Joint Managing Director and CFO, is also inducted into the Board as a whole-time Director and CFO of the company. And he would be -- also be CFO for the combined entity. I have been also inducted into Shriram City Union Finance Board. I would also continue to be a Vice Chairman of the combined entity. The -- we will be very soon preparing and reaching out to the shareholders and all the regulators, like NCLT, CCI, RBI, NHB, IRDA, to seek their approval. And we should have an expected time line of around 9 to 10 months to complete the total exercise. The presentation is already forwarded to you. You would have already gone through the presentation. I do not wish to go slide by slide on the presentation. And I will give more scope for question and answer. We have today along with me, Mr. Chakravarti, Mr. Ravi, Parag Sharma, Sanjay, to answer your specific questions. And I'll hand over back to the moderator.

[Operator Instructions] The first question is from the line of [ Abhiram Iyer ] from [ Deutsche CMB ].

Sir, could you just briefly give us a bit of more clarity on the synergies that you mentioned which contributed 10% to the bottom line? And also, how would cross-selling insurance increase synergies considering that the insurance companies would not be a part of the combined entity post the merger?

See, what we are -- yes, thank you. What we are envisaging is the -- our ability to mine the data of around 2 crore customer base what we have and trying to understand their needs and the ability to service, that should help us in increasing our insurance cross-sell. And as the entity, we are also corporate agents. We have been cross-selling insurance product of multiple companies, including the group companies, Shriram General Insurance and Life. So the customer in Shriram City Union are always in the shorter tenor and Shriram Transport in the medium tenor. So as we are able to introduce them to multi-product, the customers are likely to stay with the company group for -- sorry, combined entity for a longer time. And that should help us to sell insurance product suited to the customer much better. So we feel that, that helps us to increase our insurance cross-sell penetration.

Got it, sir. And sir, the second question is just to confirm, Shriram Capital Limited has no debt or liabilities outstanding, right, which is pro forma and get added to the merged entity?

No. This is Ravi speaking. The Shriram Capital that will roll down into the merged entity will have no liability or debt.

[Operator Instructions] The next question is from the line of Rikin Shah from Credit Suisse.

I have a few questions. Firstly, I wanted to get a sense on what could be the total cost related to the merger, including the stamp duty rate cut -- so sorry, the stamp duty and other HR-related cost? And how would it be accrued, whether it would be done over one year or over a few years? Secondly, and a corollary to that, would there be any tax incidents resulting out of the merger? Second was more of a clarification relating to the shareholding. Am I correct if my numbers suggest that Shriram Holding would be around 8.5% and TPG 2.6% in the resulting merged entity? And if we include the [indiscernible] partners as well, that could actually lead to around 16% of the stake in the merged entity. So that would result in a overall supply of $1.2 billion, which is huge, right? So are there any plans of these financial shareholders to monetize these stakes over a period of time? And third, on the cross-sell. You did mention that we aspire to reach 2 product per customer over a period of time. But assuming that a lot of that cross-sell would be in the form of insurance products, the benefit of that, either in the fee income or more products, would be accruing to the group entity, but not to the merged entity. Is that understanding correct as well? That's all from my side.

Yes. Coming to the cost, the onetime stamp duty is likely to be anywhere between INR 190 crores to INR 200 crores. It's one-time. And overall, HR integration cost should be around INR 60 crores to INR 70 crores. This includes all upskilling and the rationalization of salary between 2 companies. And that's the -- and of course, the training is normally done to upskill for any ongoing company on a regular basis. So that should not be much on the bottom line or hitting the bottom line. And some expenses like branding and advertisement, because of the new name given Shriram Finance Limited, should be around INR 70 crores. So overall, we expect the overall integration cost over the 2 years around INR 400 crores. And as far as the cross-selling of insurance is concerned and also 2 products per person is concerned, it is not only insurance. We are also talking about the other products like SCUF products in STFC and STFC products in the SCUF customers. That also is a possible chances which we calculated because as we understand, our customers, both STFC [ and SCUF ] customers, if you draw a pyramid, you will understand that top layer, which are corporate and the salaried class, are always serviced by the bank. And the bottom, which are the -- bottom, you always have a micro finance companies lending on unsecured loans. What we are addressing is mainly mid segment, which has a regular income on business, which helps us to -- which address their need because these are all the aspirational class. And they can be a shopkeeper or vehicle operator, taxi driver. And all of them are aspirational class, which you would like to go up all the time. So they need more product to be added, whether 2-wheeler customers wanting a 3-wheeler or a trucker wants a 4-wheeler, all this possibility would be there. So we are including back all those possibilities in calculating the product -- number of product per customers. And coming to -- yes, Ravi will answer.

See, in terms of the shareholding, what would be in the combined entity, if I heard your input right, you had indicated [indiscernible] at around 16%. No, I think it is more in the 6% range. And 2, both [indiscernible] and PEL have a substantial stake already in the listed company. So it is not something that is coming new into the market. And from the shareholding that is being rolled down from capital, there will be -- to the extent of the TPG's holding and PEL holding, it does come in. But that does not necessarily indicate that it is a liquid share where there is going to be a sale proposition. It is just that, as a part of the delayering, this entire structure will fall in place in a manner in the simplification of the structure. So in terms of the percentages, PEL will be close to the [ 8.37% ] and TPG will be [ 2.66% ]. And that would be the type of shareholding that will be there where already in terms of PEL, as I indicated, they will already have a direct shareholding and so this will be the total shareholding in the company.

Okay, sir. And if I just understand correctly, the sense that we are getting from the shareholders is that they are not necessarily looking to liquidate within the near term. Is that understanding correct? And second, just a follow-up on my other question. Would there be any tax implications or the tax-related costs because of the merger?

No, there is no tax-related cost. There is -- it is just that the stamp duty costs will be there, which has been factored in as part of the overall integration cost.

Okay. And the financial shareholders may -- basically, they are not indicating to liquidate in the near future?

Yes. There has been no indication received from them, yes. Because they already have their liquid shares since they have been retaining it for a long time now.

The next question is from the line of [indiscernible] from Quantum AMC.

Can you hear me? Am I audible?

Yes, yes.

Just a couple of things, sir. So with branches, how do we plan to address branches across our network, both for Shriram Transport entity? And if I do the calculation rough-cut [indiscernible] my yields on a blended book would be -- what would it be or what is the calculate yield on the blended for both put together? Shriram across -- just some direction on that.

Yes. See, as of now, the plan is to roll out all product in all branches, but it will be in stages. It will not be immediate. But we intend -- the intention is that we would be able to roll out all the products in all branches. And the rationalization of branch may not be necessary unless we're in the same [ core ] or something like that, which we are looking at. There is less scope for that [ time being ]. And as far as yield is concerned, combined, if you look at the combined yield, it would be anywhere between 8% to 9% because STFC traditionally net interest margin -- when I say net interest margin, it should be earlier between 8% to 9% because the net interest margin of SCUF is 12% and the STFC is [ 7% ].

12% and 12.5%? Hello?

Yes, yes.

All right. And can you just elaborate a little bit on the cost synergy [indiscernible] are you able [ confine between the people of cost ] and will be able to use them for Shriram Transport and so on and so forth? Or is there any [indiscernible] there? Have you thought about that? [ So you're selling us a 2-wheeler or selling a working capital loans to the different from selling SUV ]. So loan, some type of metric.

So I believe we are not able to hear properly. But the way what I understand is you are asking about our ability to cross-sell between...

[indiscernible] which is there for Shriram Transport to Shriram City? And where the City, how do they cross-sell the products for each other, the manpower which we have, the same force?

I understand, I understand. Yes. See, we are already on the upskilling and training program for our employees down the line. And today, the training is made much simpler, especially during pandemic. Most of our training program has been on the -- either on the capsule sent to them or the Zoom calls. So the -- each other -- the products of each companies, we have already have made a time line to make it available across all the branches. So the training programs will continue to happen, but rollout will be on the scale basis. We'll not be rolling out all products immediately. But the idea is to reach out most of the branches.

Last question. Did we add any new products? We want to go from [indiscernible]. So do we -- if you want to go into a [indiscernible] should we add any more product on the line, consumer goods, comment on that?

We are not able to hear. Kindly...

Do we add other product line besides CV finance, 2-wheelers, the working capital loan, [indiscernible] consumer durables, do we get into other financings just to increase the number of -- from [ 2 to 2.5 to 3 ]?

Yes. See we do have some product which we will be offering additional supply chain financing or bill discounting are some products which we are looking at because there is active [ NS ] platform for doing the supply chain and the invoice financing for our SME and the vehicle operator. That is something which we are looking at. And also, we will be looking at scaling up of -- or introducing and scaling up [indiscernible] based product. So -- but that would be over the period and not immediately.

The next question is from the line of Nidhesh Jain from Investec.

Sir, on the cost synergies, do you expect any rationalization in branches or employees post the merger? And if not, then how do we expect the cost synergies to play out?

See, what we are looking at, the way we are looking at is, we don't have to really rationalize the cost by merging branch or reducing number of employees immediately. What we feel is that higher productivity from each of the employees and our ability to sell multiproduct, that is going to help us in acquiring future loan products or future cross-selling at lesser cost. And that should help us in improving our bottom line.

Sure. And secondly, on the slide, you mentioned that the cost of fund benefit of around 30 to 40 basis point because of the merger. So how we have quantified this, sir?

Yes. Parag will answer.

Yes. One of the reasons what we are looking at is there's a rating differential between the 2 entities. So the rating benefit will automatically reflect in cost of fund for the Shriram City Union book. Other things, we'll also rationalize excess liquidity, what we are carrying in both entities. That can be relooked at and at itself will help to have lesser negative carry. Over a period of time, with larger product offering, we will look at rating upgrade also. But that would be, I think, a work in progress with the rating agencies and negotiate with them. Immediately, what we look at is for the large Shriram City Union book, the rating benefit and the cost implications thereof which can be there.

Understood, sir. Understood. And sir, you mentioned the 6.4 million active customers. How it is divided between Shriram Transport and Shriram City, if you can share that number?

Yes, 2.1 million is STFC and 4.3 million is SCUF.

Okay. Okay. SCUF has a much larger customer base.

Yes, yes. They have a small -- a shorter tenor, a smaller ticket, very large base.

The next question is from the line of [indiscernible] from Deutsche CMB.

Sir, just following up on the rating question you just answered. Given the upcoming maturity, what's the plan here in February? What's your plan? Is it to reapproach the offshore markets again? Or do -- does the company believe they have enough liquidity to [ make a ] repayment of [indiscernible] and approvals and what we have [ at cash ]?

As of now, we have sufficient liquidity, which is catering to 6 months of repayment. We don't require to approach overseas market for fresh borrowing to manage repayments. But we will look at the opportunity, look at the market and the favorable rates to tap overseas market. But for repayment, we don't require to go.

Sir, sufficient to say, for now, there is no plan to refinance this [indiscernible] if you feel the markets are right.

Correct.

The next question is from the line of [indiscernible] from UTI Asset Management.

Sir, I have 2 questions. One is given that you had 2 entities till now and now you are having a single entity, do you feel that the single borrower limits with the banks and lending institutions will be impacted and that way, we'll have a challenge in raising fresh resources on the borrowing side? So that is my first question. And my second question is that I understand you don't have any liability at Shriram Capital level, but are there any corporate guarantees or anything like that at Shriram Capital level? That's all from my side.

Before we take up the funding -- single borrower limit, I'll just -- there are -- as far as the assets that are going to come in from Shriram Capital into the merged entity, it will only be the shareholding of STFC and shareholding of SCUF in SCL. So there is nothing else. No liability, no guarantee, nothing will come in with respect to the merger. So it is a clean transfer of only the share. And in lieu of those shares, it gets allotted to the shareholders of capital [indiscernible]

Coming to single borrower limited banks, we don't feel that there is any challenge. Most of the public sector banks are pretty large post the merger exercise they have undergone. Single borrower limit, I think, nowhere is a challenge, I think, will not be even around 2% to 3% of single borrower limit at the large public sector bank. Most of the private sector banks and foreign banks have done large securitization, and the term lending is slightly lower there. So I don't -- we don't foresee any challenge there when it comes to the single borrower limited banks.

The next question is from the line of Anand Laddha from HDFC Mutual Fund.

Sir, both Shriram Transport and Shriram City, they used to pay royalty to Shriram Capital, to the extent of 1% of the revenue. Post this merger or post this amalgamation scheme of things, what will happen to that royalty? And if you can quantify what could be the amount of the royalty?

The royalty was never paid to Shriram Capital. The royalty has always been paid to the brand-owning entity, which is Shriram Ownership Trust, and subsequently Shriram Value Services and that is not in capital, and so that will continue as royalty. And the terms of the royalty remains the same.

Okay. Sir, then the saving of 10% or the benefit of 10% to your profitability, could you elaborate from where it will come? It is largely due to cross-sell you are indicating, that is the only thing or would there be any optimization of revenue or cost reduction that will contribute to the benefit?

No. It is a combination of all. See -- when I say synergy, we have multi -- [ admin ] side, operation side and the future business. All put together, we are putting this number.

Okay. So what I understand is INR 400 crore is the cost which will come upfront because of this merger, whereas the benefit will accrue over a period of time?

Yes. First year, the cost -- stamp duty cost will be absorbed in the first year. And the second year, there's only [ HR ] integration cost would remain. So in the first year, the benefit is around 8%. And the second year, the benefit would be between 12% to 14%.

12% to 14%, what, sir? Benefit in terms of...

Bottom line, when I say synergy benefit, at the bottom line. That's what you're referring, no?

Correct. Correct. But sir -- what I understand in the earlier question, you indicate the benefit will accrue as you more cross-sell. But anyway, sir, Shriram in life insurance [ than were ] part of the group company, and you were already selling general insurance, life insurance. But not still able to understand how the benefit will accrue, whereas cost, INR 400 crore cost will be upfronted.

This is Chakravarti here. See what Umesh meant was that the cross -- by cross-sell, he meant not just selling insurance products. It's -- the cross-sell is that you are selling SCUF products to STFC customers and STFC products to SCUF customers. So the idea here is that the bottom line to the PAT is about between 8% to 10% first year and 12% to 14% second year is what they think would accrue. Because of the incremental business, incremental loan disbursement that's going to happen and not just a cross-sell or insurance product.

Okay. Sir, today, we are not doing any cross-sell to the Shriram Cap customer? Or there's no interaction between the 2 entity?

No. There's hardly any overlap between the 2 entities as far as customers are concerned.

Sir, then what makes you so confident that there will be a significant cross-sell opportunity?

That's because basically both are -- both have different databases. And I'm not at liberty to go and exploit or mine the data of each of the company is one. Second is the geographical expansion. We will -- for both products, you are adding close to 1,000-plus branches. For example, for SCUF, which is in about 970 branches, 88 -- close to 1,800 STFC branches will be available. Similarly, for STFC, another 800, 970 branches. The overlap between both the companies in terms of branches locations are hardly about 50, 60. So that's also the network and the spread over geography.

The next question is from the line of [indiscernible] from Kotak Mutual Fund.

So I have 3 questions. First is, will both these businesses continue to run as separate verticals? Or we are also looking at some sort of a process overhaul in terms of running each of these businesses individually?

The idea here is, see, it's not a balance sheet merger. Please understand that. This is their business merger. And all branches will sell all products.

Okay. So to that extent, obviously, our employees will have to be -- at both the ends will have to be trained for all the products and probably the synergy benefits might get delayed to that extent? Or you think it's probably over a period course of 18 to 24 months, this can be achieved?

See, we have also budgeted a -- we have a -- we have also budgeted a cost for the upskilling of people on our products. But what you need to also understand is that right now, both the companies, the products are available on the app for employees. The knowledge of the product is available for our employees, number one. Number two is we have a program called myCoach, which is available to all the employees, basically divided into modules. So we are -- we will be taking our employees through the whole process and would be ready by the appointed date.

Okay. All right. Understood. Sir, my second question is, will there be -- post the whole merger gets consummated, will there be any cross-holding between the shareholders of the lending entity and the non-lending businesses? So let's say, for example, the life general and all the other non-lending businesses, will they directly or indirectly own anything into the listed entity, Shriram Finance?

No. If you look at the structure that has been provided, it is primarily -- the holding is directly with the promoter entity, Shriram Financial Ventures, along with a small portion with Shriram Ownership Trust. That is the structure which we will be having. We have not contemplated any shareholding of insurance in the operating company as of now.

Okay. Understood. And sir, lastly, what proportion of the merged entity now will be owned by the employees of the group?

Okay. See, if we look at the 1.88% which is reflected, that is completely with the trust. And out of the balance, [ 18.23% ], roughly around 64% is with the trust. The balance of the [ 36% ] belongs to [indiscernible]

Okay. Okay. Understood. So 1.88% plus 64% of the balance, 18-odd percent.

Correct.

Okay. And sorry, just a follow-up. While the merger will take some time to consummate, any class of shareholders have any sort of lock in?

The structure -- the regulated structure does not require any lock-in [ building ].

The next question is from the line of [indiscernible] from Point72.

Can you hear me?

Sir, please speak a bit louder.

Sorry. And now better now?

Yes, sir. You may go ahead.

Just a quick follow-up on the synergies, [indiscernible] first year, 14%.

Sorry. You are not audible.

[Operator Instructions]

Am I audible now?

No, not yet.

Sorry. Let me try again. Am I audible now?

This is better.

So we talked about 8% synergy first year, 12% to 14%, second year. Sorry if I missed this, but do you mind give us a deeper breakdown into how many percent of that is expected to come from cross-sell, how many percentage from the cost synergy?

See, on the percentages, probably we will get back to you on that if you want an exact percentage. But right now, what we have looked at is -- we do have -- while we have worked out on what is it that we are expecting from cross-sell and what is that we are expecting from incremental business, off the top, I would say, about 70%-plus of the incremental PAT will come from -- a minimum of 70% will come from the incremental business and not fee income. If you divide it into a fee income and non-fee income, as Chakravarti said, the exact numbers will get back. But see, what we have done is we have taken -- we have divided the company into 5 geography. And 5 geography, hence, we have taken them into confidence, and looking at the various products and services. What we can do over the next 2 years, we have made an assessment. And based on that, we have arrived at this number. So most precise numbers, whenever you need, you can contact Sanjay for the same.

Got it. Just one last one. I understand that we haven't -- we don't really have cross-sell right now. But it seems that the opportunity set of cross-selling is pretty large. Just wondering why we didn't -- or do we ever try to do similar cross-selling?

I'm sorry. Sorry, your voice sounds gabled. Can you please repeat it slowly?

Sorry, am I audible now? My bad.

You're audible, but the voice is garbled so speak a little slowly so that we'll be able to...

Yes. Cool. So magnitude of the cross-selling benefit seems pretty substantial. Just wondering, because I noted that we haven't -- you don't have any cross-sell right now. But have we tried to do any form of cross-selling in the past before? And please explain do the -- because you haven't explained why you didn't do that.

We have been doing -- please understand. We have been doing insurance cross-sell by both the companies, both Shriram Transport and Shriram City Union. We have been doing insurance cross-sell. We have not done the product cross-sell now. So the one thing is the products cross-sell is a scope and opportunity for us. And at the same time, when we have combined database, we should be able to do the data analytics better and understand the customers' needs and would be able to service them with a better -- more product and more services. That is the idea behind it. And we have made that exercise across all the geographies. And as of now, the Shriram Transport Finance customers, 7 out of 10 customers have availed additional product. And Shriram City Union, 5 out of 10, they have availed additional product. So one other thing is the SCUF product was not available to STFC because we have always worked as a separate entity and we did not try to really sell. Imagine a STFC customer, if he wants a 2-wheeler for him or for his son, we will not -- our customers were not encouraged to approach Shriram City Union or -- nor we gave him that product. Now it will be available across the table for all the customers in all branches.

The next question is from the line of Rikin Shah from Credit Suisse.

So this is a follow-up to the question on cost of benefit -- sorry, cost of funding benefit. While we understand that Shriram City Union has a credit rating which is a notch below Shriram Transport, but if I look at the cost of borrowing, for Shriram City Union, it is around 8.99%, whereas for Shriram Transport, it is closer to 9.2% to 9.3%. So despite of lower credit rating than Shriram Transport, they are already running on lower cost of borrowing. So how do you see the incremental 30, 40 benefit -- basis points of benefit coming through from the merger?

I don't know from where these numbers are being calculated. But I think what we are looking at, the incremental borrowing what we have done for the last 2 years and the cost going ahead for the same, I don't know. So I won't be able to comment on the numbers, what you have indicated. I know what the 2 entities borrow for the last 2 years. And we see substantial benefit to come for one of the entities because of the rating. That's it.

Yes. So my numbers that I mentioned were on the book basis, not on the incremental. So one benefit on cost of funding will, of course, come through due to incremental borrowings being repriced at the lower versus your older borrowings. So that benefit will anyway accrue. But just because of the virtue of the merger, is there any incremental cost of benefit coming through? That was the question.

If there's a rating benefit, automatically, the cost benefit will be there, right? That is what we're talking about. And even all lenders, we're not talking about the debt capital market, even the bank lenders will be looking at external rating and then given the benefit. So that will be there. We just -- we have looked at the numbers. We have looked at what would be our borrowing requirement for next few years and then calculated the benefit.

The next question is from the line of [indiscernible] from Wellington Management.

I just have a question on the debt side. Are there any change of control triggers that may be -- that you have to consider? And what are the rating agencies' views on this? Would this affect your international credit ratings?

Okay. So what covenants we had was Shriram Group to continue to be the controlling promoter, and that doesn't change. It continues. It shifts from Shriram Capital to Shriram Financial Ventures. So that trigger is not there when it comes to overseas borrowing, specific overseas borrowing. Domestic lenders, we will have to reapproach and which we'll take their consent, we'll reach out to them over next week's time because of a change of promoter entity itself. And also, in case there is any change in shareholding, we have to take their consent. But when it comes to overseas borrowing, we have always given the commitment of controlling the entity to the Shriram Group.

Yes. Sorry. So just in terms of the rating agencies, have you asked them for their opinion on your current credit...

We'll be approaching them now because announcement is only today. So we will be reaching out to rating agencies post this -- during this week.

Here, I would like to add, say, we are going by the past commentary or past feedback from the rating agencies. As far as Shriram Transport Finance Company is concerned, there is a feeling that we are a monoline business. So they cannot upgrade us immediately because business is cyclical. At the same time, Shriram City Union is concerned, they were feeling that it's concentrated in certain geographies. And now these -- both these things will be addressed with multiproduct and multi-geography. We feel that the rating companies would be more positive, and we should be able to get a better benefit out of it.

Yes. Just -- sorry, just one final question. Any other covenants that you have to deal with on the debt side to allow for this merger?

Well, in fact, most of the lenders locally will have -- any kind of merger, they will have to have -- we have to take their consent, so we'll be reaching out to everyone. But when it comes to a specific covenant breach, there is no covenant breach per se.

The next question is from the line of Prashanth Sridhar from SBI Mutual Fund.

Yes. So towards these new RBI guidelines, what does the NPL number look for the consolidated entity? That is one. And the second one is, so sir, now you are, Revankar, sir, as the [indiscernible] MD and CEO, so who do we look at as the person who would run day to day?

Sorry. Can you repeat it? We are not able to...

Sorry. My first question was post the new RBI guidelines, what does the desired NPL number on a consolidated basis look like?

Consolidated NPL numbers. New guidelines, our new guidelines, we are working out and we are ready to get a grip of that. But it may not be significantly high because, overall, if you look at, we have been practicing that whatever goes into Stage 3 for making it as a standard, we used to insist on full payment. So therefore, there is no impact on the same. Only on our day-based NPA recognition. We were doing at the month-end. Only that part, we need to look at. So we feel that it should not be a significant event. However, for us, what is important is credit cost because credit cost doesn't change because of the new regulation. Credit costs remained same for both the companies on a historical level. And therefore, we feel quite comfortable even when -- if there are changes. And the industry body has been representing very strongly on this because we are catering to the unbanked and the underbanked customers where the cash flows are not as smooth as salaried class or corporate entities. Therefore, we feel that RBA is likely to look at our request positively.

Okay. Sure. Sir, the second question was, now this consolidated entity could have how much total exposure to other businesses of Shriram Group, whether to corporate guarantee or whatever?

I think it's almost -- it's 0. The only thing that we have would be investment in Shriram City. That's it. I mean, sorry, Shriram Housing Finance. Another, there is no corporate guarantees outstanding.

The next question is from the line of Ankur Jain from Prayaas Capital.

So it's an observation and maybe you can add some thoughts on it. So when I look at Shriram City Union Finance and the flagship product of SME financing, I understand that most of the business comes from around 1/3 of the branches, which SCUF has. And it is because SCUF has been very judicious and very cautious in extending the product to different geographies. Only once the company understands the nature of the market, then only they open [ the limits ] and they introduce the product. So after all these years, there's only 1/3 of the branches which have SME financing. Now my observation is that now with so much of emphasis on cross-sell going into the integration, everybody will be talking about cross-sell, 50,000 employees. And this will become a buzzword. So is there any risk of the credit underwriting getting undermined because everybody's focused on cross-selling, and it takes time for the employees to understand the products, even though you might upscale and provide the [indiscernible] but it takes a good amount of time for them to get the experience of our financial product? So if you could add some thoughts on this.

Yes. I think, see, as you mentioned, we have been slow in expanding to particularly MSME products. The reason being we actually -- as you know, we start with the 2-wheeler understand the trade behavior and then also move some of those 2-wheeler people who are performing well into MSME, right? That's the model. So today, the advantage for us would be that we -- wherever STFC is, they have been established there for some time. They have the expertise -- they have the knowledge of the credit behavior of those markets. And they have people with the longevity with them, which would actually make it easier for us to do a rollout. And as far as risk is concerned, I'm sure we'll be able to contain it because the credit hubs, we will follow our spoke and -- hub and spoke model where the credit teams will be in the hubs. And I don't think there would be any -- we would be looking at any dilution of our credit under our underwriting norms.

Added to that, see, STFC business, like is nearly 4 decades old. And we have been into these various geography much earlier, whereas Shriram City Union, the business started around 2006, especially the personal business and they scale SME over the period. So because of that, they were not expanding faster into newer geography. Only after testing, they were expanding their SME business. And right now, the STFC branches being there. And the initial assessment of the local geography or behavior been already assessed, it will be easier to roll out. Here also, we are not going to roll out all products in all branch. It has been staged manner.

Yes. My only feeling was that when the pedal is pushed very hard on cross-sell, then there is a risk of the credit underwriting getting a little dilute -- I mean, diluted, but I'm sure you'll take good care of it.

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

Thank you. We would be soon reaching out to every -- the investors across and clarifying any further doubts wherever you -- our investors have. And we also have -- as I was telling you, the expected time lines are between 9 to 10 months. And by the time we finish initially -- initial stages at SEBI and then go to the NCLT for shareholders' meeting, it will be another 3 to 4 months. So we have time to talk to all our investors and clarify. We are quite confident about the -- today's merger announcement. And the senior team across all companies have taken into confidence. We have debated, discussed [indiscernible] into each of the aspects of the merger. And we have -- we see a lot of enthusiasm in the team. And we are very confident this will give a very good win-win benefit to all stakeholders across the -- both the companies. Thank you very much.

Thank you. On behalf of Shriram Group, we conclude today's conference. Thank you for joining. You may now disconnect your lines.