For Manappuram Finance, electric vehicles are one segment which shows immense promise. In a free-wheeling chat with M C Vaijayanthi, Senthil Kumar, Head of Commercial Vehicle Business of the firm, speaks on the prospects for financiers as electric vehicles mature, the lack of profitability among taxi operators and future business outlook. Excerpts:
When do you see the sales momentum picking up?
Now with elections, there is always a wait and watch attitude. Post-monsoon is when markets pick up, so things will settle down after a few months.
For us, we have in fact grown very well in the last couple of quarters in commercial vehicles. Cost of funds have gone up by 50 basis points, but that has not affected our growth. Quarter on quarter we have grown 19 per cent (December quarter), which was against the industry trend, CV loan grown was 20 per cent. We were, fortunately, able to pass on the cost of funds to the customer.
Is the BS VI transition going to be the next challenge?
Yes, there is always a cost implication, but in the long run it is going to be very advantageous to the transporters and the industry. It will definitely lead to a lot of savings in terms of fuel and maintenance for the transporters. For the OEMs, replacement wise, the sale is going to improve. For financiers, there will be a lot of replacements.
For banks and larger NBFCs, they will have their own set of customers coming for replacement, and for a company like us in pre-owned vehicles segment, when replacement demand kicks in, we will have newer vehicles coming in for replacement. Which is very advantageous.
There will be Rs 2-3 lakh cost increase, painful in the short term… But, long term it is very good. There is definitely going to be a resistance with cost, higher cost of vehicles, higher EMIs., Average EMIs of Rs 65,000 to Rs 70,000 will see an increase of Rs 10,000 to Rs 12,000. Over time it would settle and we will have newer set vehicles on the roads.
How much of an increase in cost of funds did you witness since September?
Cost of funds for us had initially gone up by 50 to 60 basis points. Now that the markets have cooled down, it is expected to soon be back at pre-September levels. We have a distinct advantage, the majority of our portfolio is in gold loans, where we have a shorter cycle of three months. When others went through asset liability mismatch, we didn’t have any issue. Though cost of funds went up availability was never an issue.
In general though, I don’t think things have changed much. I think one of the reasons for slowdown is non-availability of funds, reluctance or inability to fund new vehicles. That has been a spoiler in the last five, six months.
Have you been funding fleet taxis, or the shared mobility space?
How profitable is it for people who are running it, is the question. Unless we shift to electric vehicles, which might change their operational dynamics, in the current scenario I don’t see anything that is going to change their profitability. CNG probably gives some kind of margin. Financiers have taken a huge hit on this. Fortunately, we realized early on that this is not a segment for us, so we don’t have much exposure.
But, you are bullish on the electric segment?
We have also ventured into electric bikes. Electric two wheelers is going to be the new future, next year or in the next couple of years. We are very keen on expanding into electric vehicles. We have done some three wheelers too. Operational efficiency-wise it is good... cost is also good. We have tied up with a couple of manufacturers.
There will be initial resistance in terms of financiers, because we also look at resale value of vehicles. As and when the market matures, this will also increase. The price difference may narrow with volume increase. When we adapt, price difference may not matter too. If maintenance or operational cost is reduced, customer’s ability to pay back improves. That is my selfish interest, apart from environmental reasons.
What is your business outlook?
We are more into the retail segment. Though we fund new SCVs and LCVs, we are more into used HCVs. In terms of CVs we are looking at doubling our portfolio next fiscal. We have a portfolio in 2-wheelers, we will focus on electric. We will also try and expand in the used car market. We have a presence in tractor finance, but it is limited right now. We have identified a couple of districts where crop pattern in not fully monsoon dependent for this segment.