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Budget to boost rural infra, help in CV cycle recovery: Umesh Revankar, Shriram Transport Finance

“From Q2 to Q3, the numbers have been steady and expect the Q4 number also will be very good.”

ET Now|
Jan 12, 2018, 03.12 PM IST
Umesh Revankar, Shriram Transport Finance
Last year, the government had allocated quite substantially in the budget for the rural infrastructure but most of the executions did not happen, That rollout could happen this year
In an interview with ET Now, Umesh Revankar, MD & CEO, Shriram Transport Finance, says, the basic demand for LCVs comes from improvement in agri output and also consumption demand. Stricter offloading norms led to demand for heavier vehicles.

Edited excerpts:

Analysts have been talking about a revival in the CV segment. What are the key demand triggers that give you a sense that the CV cycle is on the brink of a recovery?
There are several reasons for increase in demand for heavy vehicles. The main reason is the stricter norms on overloading, especially in the northern belt which was earlier not so tightly controlled. The overloading ban has impacted the older 25-ton vehicles which they used to overload and people are now changing into the 37-ton or 31-ton vehicles.

And the second is of course the infrastructure demand. Most of the demand is coming for infrastructure activity, especially on dumpers. These are the two major drives. As far as LCV is concerned, the basic demand comes from improvement in agri output and also the consumption demand. There is a consumption demand going up, especially post October-November and that will continue. Also, the e-commerce activity has helped the LCV demand in the urban and semi urban areas.

Overall, you cannot compare with the previous year’s numbers because the low numbers of November-December last year were basically because of demonetisation. So, we have to take note of quarter-on-quarter numbers only. From Q2 to Q3, the numbers have been steady and I expect the Q4 number also will be very good.

I expect the demand for heavy vehicles to continue till June before the onset of monsoon. And for LCVs, the demand can continue throughout the year.

How much loan uptick do you see from the movement to the new BS norms and revival in rural growth? You have guided for 15% growth in FY19. Do you think this budget can do what it takes to bring about that pickup?
The budget will definitely be positive on the rural infrastructure. Last year, the government had allocated quite substantially in the budget for the rural infrastructure but most of the executions have not happened either in road or rural. I think that rollout will happen this year and so there will definitely be more focus on execution and completion and especially the rural infrastructure is very important because to manage the existing urban cities properly we need to manage the village as well, village and rural area.

If we do not give enough infrastructure in the rural area people tend to migrate to urban areas because of school, medicine, water and sanitary facilities. Once that is available in the rural infrastructure, people may not really migrate and put pressure on the urban. That is where rural infrastructure is very important and the government will put enough focus on that in execution. It will definitely help our segment, especially the segment where we are in the used vehicle and smaller commercial vehicles. There will be a huge demand from rural areas.

Which are the schemes where increase in allocation would directly benefit you?
Allocation on the road and rural infrastructure will definitely benefit as with better infrastructure, then the faster movement of goods, you need more vehicles and that is where the demand will come in. Even the demand for passenger vehicle and tractors will improve because once there is reasonably good money with the rural area, the people tend to move towards the city for their any needs or businesses. So the movement of people also will make the passenger movement and passenger vehicle demand to go up in the country.

Are you concerned at all about the cost of capital rising? There are no indications from the RBI just as yet but credit cost is expected to normalise as the economy picks up. To what extent will provisioning and asset quality improvement pan out for you through the course of the next 12 months and how is the transition or the movement to 90 days panning out?
We are moving into 90 days in the last quarter of this financial year and that should be the last one. After that, there should be reasonably easy management for us because when you move from 120 to 90 days, the fresh provisions you need to make will suddenly increase the provisioning. I feel once we settle down at 90 days, you do not have to really add anything further.

Today, the credit cost per se is around 3% for us. On an average, it should come down to around 2.5%. That should happen over the next 12 months. But going into 90 days will happen in the March quarter and at that time the gross NPLs are likely to move by around 100 to 120 bps.

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