Auto Sector will see Sequential Growth; It will start with pre-owned Vehicle Segment: Ramesh Iyer, M&M Financial
NBFCs plays an important role in retail financing. Secondly, they, the NBFCs, are not just working in urban areas but they go dipper into villages and rural India. I have a feeling that NBFC will always have its importance. As far as growth is concerned then it will first start from pre-owned vehicles segment.
NBFCs play an important role in retail financing, says Ramesh Iyer, Vice Chairman & Managing Director, Mahindra & Mahindra Financial Services Ltd. During an interview with Swati Khandelwal, Zee Business, Mr Iyer said, 'Demand in the auto sector will start from pre-owned vehicles and will sequentially move to a new vehicle to tractors and to the commercial segment respectively.' Edited Excerpts:
Q: What is the situation revival process of the Banks and NBFCs in the coming quarters? What are the factors or segments that are giving you confidence that there is a revival in the sector?
A: NBFCs plays an important role in retail financing. Secondly, they, the NBFCs, are not just working in urban areas but they go dipper into villages and rural India. I have a feeling that NBFC will always have its importance. As far as growth is concerned then it will first start from pre-owned vehicles segment. Today, consumers have a willingness to have a second-hand vehicle instead of the brand new one under the existing environment and engage them in their work to get better returns. This is why the demand for pre-owned vehicles are good.
The demand for new vehicles will pick up after the transition period from BSIV to BSVI is completed and new vehicles are launched and new prices are announced. Things will change sequentially and will start from the pre-owned vehicle, which will then move to the new vehicle to tractors and the commercial segment respectively.
Q: Some NBFCs have performed well, while some are still facing concern, going forward to what kind of business model is going to sustain and are your adopting the strategy?
A: If you have a look at the last one year, then the liquidity pressure was too high on several NBFCs, which has reduced with time. There is a decline in interest rates as well for all the NBFCs. So, the trend of liquidity availability and reducing interest rate regime is clearly visible. Improvement and stability can be seen in good NBFCs with good loan sanctioning and recovery measures. NBFCs will have importance and I think it is just a matter of time and the positions will improve by the next festival season.
Q: There is a visible slowdown in private consumption and rural demand. How can that be overturned and when do you think demand will once again pick up?
A: Demand is an outcome of sentiment. And in the case of vehicles, people are also waiting for the transition from BSIV to BSVI and find out the change in price and the type of vehicles that will be available. Thus, various factors are causing this disruption, however, definite improvement in demand can be seen by the festive season. If the infrastructure story opens, then the demand will pick up much faster from that time.
Q: What are the company's strategies for deeper penetration into rural markets and market share gain?
A: We have been working in the rural area for the last 25 years. We are functioning in the region with 1,500 branches and 300 smart branches. Our consumers are spread in more than 4 lakh villages and have already worked with 7 million customers. We have worked with almost each OEMs and have a relationship with every dealer. So, competition is not going to be a new pressure for us. Right now, we are focusing on how deep we can penetrate and the speed of penetration and the ways to retain our existing customers and the creation of new customers through them. Finally but not least, the kind of product that we are designing and launching in the market. So, things depend on all these factors and I feel that growth and headroom are quite high for us, at present.
Q: You are present across tractors, cars, utility vehicles and CVs. What is the kind of growth trend you are seeing across these segments?
A: Demand is good in pre-owned vehicles and as far as new vehicles are concerned then good demand can be seen from September-October 2020. Fast-paced rural revival can be seen if the crop production (Rabi crop) remains good in February-March and there is an improvement in cash flow and infrastructure story opens up.
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Q: What are your views on NPA levels and asset quality in the next quarter? How are you gearing up for the next fiscal year 2020-21?
A: The rural pressure - may be due to farm cash flow or infra cash flow or sentiment - that had continued for the last one year has put some pressure on certain NPA. But the two quarters, i.e. third and fourth quarters, always remains good for the rural region because harvest remains good, festival demands and wedding season, which opens the consumption story. This leads to an improvement in cash flow and a similar trend is visible at present. As I have earlier said that the Rabi crop is good this time which will have an impact on cash flows. So, I don't feel that the NPA pressure will continue to be in the same in future as well. We are definitely hopeful that an improvement will be seen in the recent future.
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