Good morning, ladies and gentlemen. Welcome to the Shriram Transport Finance Q4 and for the full year FY22 earnings conference call. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. 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.
Thank you. Good morning, friends. Good evening to those who have joined from western part of the world. A warm welcome to all of you who have joined this call. Hope all of you are healthy and safe. Today, we have our JMDs, Joint Managing Directors, Mr. Sudarshan, Sridhar, Nilesh, Sundar, Parag, along with me. We also have Mr. Sanjay, who is our IR head. Let me first start with few economic indicators that impact our business directly or indirectly. The first big positive is the budget of 2022 that focuses on infrastructure. With intention to provide blueprint to steer Indian economy for high economic growth and sustainable development, and to encompass engines of economic transformation, seamless multi-modal connectivity and logistic efficiency. Also to achieve $5 trillion GDP.
The Budget 2022 recognizes infrastructure as key cornerstone. The budget has focused on high impact areas and given accelerating capital expenditure cycle by providing a sharp increase in CapEx outlay by 35.4% to INR 7.5 lakh crore for 2022-2023, which is likely to strongly augment infrastructure spend. That it has a direct impact on the CV cycle and construction equipment demand. However, the elevated inflation trends remains a challenge for our growth ambitions. Wholesale inflation averaged nearly 13% in 2021-2022, more than double rate of retail inflation. This happens to be highest annual number in three decades. The consumer price index inflation, CPI jumped to 6.95 in March, mainly on account of costlier food items as against 6.07 in February.
It is for third month that retail inflation remained above RBI's comfort zone. The government's hands have strengthened due to all-time high GST collection. The gross GST revenue collected in the month of March is INR 1,42,095 crore, all-time highest, beating earlier record of INR 1,40,986 collected in the month of January 2022. The revenue for the month of March are 15% higher than the GST revenue in the same month last year. The average monthly gross GST collection for FY 2021-2022. For last quarter of FY 2021-2022 has been INR 1.38 lakh crore against average monthly of 1.10, 1.15 and 1.30 in the first, second and third quarter. This reflects the economic recovery and direction of the growth.
The geopolitical issues, the war in Europe has given opportunity for India on wheat export at highly remunerative returns, much higher than the MSP. India being the only country at this point in time with the bumper wheat crop, India is positioned very comfortably in the exports. The high edible price also is highly remunerative for the local farmers. Majority of the workforce being in the agri and the farm sector, this is quite positive for the large population. However, the continuous high crude price and their domino effect is a challenge and has a direct impact on WPI and CPI numbers, which I had indicated earlier. It also has impact on the balance of payment.
I would like to highlight certain new amendments and circulars issued by RBI from January 1, 2022. I highlight four of them. One is provision norm for income recognition, asset classification, and provisioning pertaining to advances. Classification regarding upgradation of loan account classified as NPA to standard asset only on full repayment of arrears of interest and principal. This is applicable as of March 31, 2019, but RBI also had given some leeway after that. We have already complied with everything, every part of it. Implementation of core financial services solution, which is applicable as on March 31, 2024, we are already compliant. Compliance function and role of CCO, chief compliance officer, there is one year time.
Since the merger of Shriram Transport Finance and Shriram City Union Finance is in progress, we have enough bandwidth, and we should be able to either internally or externally identify the right person, and before 2023 we should be able to appoint. The scale-based regulation for NBFCs, capital requirement for NBFCs of the upper layer, Tier-I capital of at least 9% risk-weighted asset, we are already compliant. Most of the initiative of RBI has been complied with. Now, coming to the auto industry. In spite of chip shortage that has impacted passenger production and sales for the entire year, the commercial vehicles have been doing very well.
Their sales have increased by 18.75% to 249,806 units in Q4 2022, against 210,356 units in Q4 2021, and increased by 28.3% compared to 194,712 units sold in Q3 2022. For the full year, it registered 26% growth to 716,566 compared to 568,559 units sold in 2021. The heavy and medium commercial vehicles showed positive growth of 16.69% with 93,974 units sold in Q4 against 80,534 units sold in same period previous year. A positive growth of 46.92% as compared to 63,964 units sold in Q3 2022.
For full year, it registered a growth of 49.72% to 240,577 units compared to 160,688 units sold in 2021. The LC numbers also show a growth of 20.04% to 155,832 units as compared to 129,822 units sold in Q4 2021, and a growth of 19.18% as compared to 130,048 units sold in Q3 2021-2022. For the full year, growth of 16.7% to 475,989 units compared to 407,871 units. Used vehicle demand has been pretty high, and on average, the retail prices have gone up by 20%.
On the LCV, the retail prices are as high as 30%-35% on it. Heavy, it is anywhere between 15%-20%. Now, coming to the fourth quarter and full year performance. The collections have been very good. For the Q1, Q2, Q3, and Q4, the collections have improved over the period from 91.04% in the first quarter, 99.03% in the second, 101.17% in the third, and 104.28% in the fourth quarter. We clocked a disbursement growth of 13.42% of INR 16,982 crores against INR 14,973 crores in the same period previous year, and increased by 9.64% as compared to INR 15,488 crores in Q3 2022.
The asset under management grew by 8.36% to INR 1,27,040 crore as compared to INR 1,17,242.83 crore in the previous year, and increased by 1.96% as compared to INR 1,24,001.77 crore in Q3 2021-2022. The net interest income increased by 22.16% to INR 2,627.82 crore as against INR 2,151.12 crore in the same period previous year, and increased by 10.04% as compared to INR 2,387.97 crore in Q3 2021-2022. For the full year, the net interest income increased by 14.07% to INR 9,316 crore as compared to INR 8,167 crore in 2021.
The net interest margin was 6.96% against 6.80% in the same period previous year, and 6.65% in Q3 of 2022. For the full year, 6.62% as compared to 6.7% in the previous year. The profit after tax increased by 43.87% to INR 1,086.13 crores in Q4 2022 compared to INR 754.93 crores in Q4 of previous year, and increased by 59.58% as compared to INR 680.62 crores in Q3 2022. EPS stood at 101.74 against 100.97 in the previous year.
The gross Stage 3 declined by 133 basis point and Net Stage 3 declined by 69 basis point over Q3 2022 and hence the gross Stage 3 stood at 7.07% compared to 7.06% in the previous year and 8.40% in Q3 2022. The Net Stage 3 stood at 3.67% compared to 4.22% of previous year and 4.36% in Q3 2022. If you recollect, there was an 80 basis point increase in gross Stage 3 and 47 basis point increase in Net Stage 3 due to revised process of NPA classification based on RBI circular November 2021. Even though RBI has given time, we have decided to continue with the RBI as per the RBI circular.
The credit cost for the current quarter stood at 2.03%, and for the full year it stands at 2.68 against 2.48 in the full year 2021. Our liquidity position now stands at INR 17,709 crore against INR 17,319 crore in the previous quarter. The board has suggested us to continue with higher liquidity due to geopolitical issues and also some concerns on a rise of COVID-19 cases in certain pockets. The cost to income ratio was 20% in this quarter, and for the full year it stood at 19.89 as against 21.20 recorded in the same period previous year, improving further on our principle of frugal management.
We have added 20 new branches, mostly conversion of rural center into branches during this quarter, which now stands at 1,854 numbers. In terms of employee strength, we continue to add more numbers, more employees through business associate model so that we can onboard new employees by fresh training. The significant increase in economic activity post easing of lockdown by state government due to COVID-19 and resulted improvement in business operation of the company. As a matter of prudence during the quarter, company has written off loans outstanding amount to INR 799.92 crores by utilizing the EC provision created as management overlay on account of COVID-19. The EC provision of INR 2,052 crores is retained by the company as on March 31, 2022 towards further management of overlay on account of COVID.
The progress on merger, t he company has received approval from BSE and NSE under Regulation 37 of SEBI LODR, conveying their in-principle approval to the scheme. As per the direction of stock exchange, the company has posted all necessary document and information pertaining to the scheme on the website of the company. The company has filed a company application seeking direction from the NCLT Chennai for convening meeting of shareholders, secured creditors and unsecured creditors. We are waiting for listing of our application and for hearing by NCLT. Necessary company petition will be filed with NCLT after resolutions are passed in shareholders' and creditors' meeting for the approval of the scheme. The process of getting necessary regulatory approval are underway. All matters, activities in connection with regulatory approval are progressing as per the schedule.
The scheme is effective upon approval of Honorable National Company Law Tribunal, Chennai after obtaining necessary regulatory and statutory approval. We have made a significant progress on merger front. We have started integrating our systems and processes. The HR integration on back office and operations have already started. The JMDs who are geographical unit heads are all set to take their responsibilities. On the growth outlook, we have targeted a 15% growth for the combined entity and on standalone basis on the commercial vehicle lending it would be 12%. Now, I request our CFO, Parag Sharma, to take the call and subsequently Sundar also would join with some accounting numbers. Thank you.
Yeah. Hello, everyone. Liabilities, total liabilities as of March 2022 is INR 1,14,497 crore. The composition has slightly changed compared to last year. We have been able to increase our deposit portfolio from INR 16,000 crore to INR 21,000 crore now, which is increased from 14.76% to 19.14% now. Share of bank loans has also gone up from 16% to close to 20%, 19.6% now. What is happening is the cost has come down on the entire liability. The cost is now at around 8.14%, down by around 83 basis points compared to last year, and quarter-on-quarter also cost has come down by around 31 basis points.
The composition we have been indicating will be 20% of liabilities from each source. We are close to 20% from each source, other than the debt capital market, which is at around 23%. The foreign borrowing, which is ECB loans and bonds, is also close to around 20%, and that was the case last year around also. The fund mobilization for the quarter has been good and the incremental cost of fund is down by around 20 basis points. The total funds mobilized in Q4 was close to around INR 15,000 crore, including an ECB which we did in January to the extent of INR 3,500 crore. We had mentioned about our liquidity at INR 17,000 crore, which is good enough to repay all liabilities for next six months.
We have guided that we will bring down this liquidity over a period of time. We will look at Q1 onwards to bring it down slowly. We have a dollar bond maturity in October, which is a substantial amount. We'll build up buffers for that and not dilute our liquidity buffer substantially. It will come down by, instead of six months, maybe come down to five months and then four months, but we'll maintain slightly higher liquidity. On the ALM front, all buckets have been positive as in past, and the cumulative surplus up to one year will be INR 20,000 crore and up to three years will be around INR 26,000 crore. High-quality liquid assets is 148.7% against the regulatory requirement of 60%.
That we have been maintaining right from the time the requirement of HQLA came in. It has been always more than 100%. With this, I hand it over to Sundar for his comments on.
Hi, everyone. On the one-time restructuring, the company had implemented the resolution plans, both OTR 1 and OTR 2, to relieve the COVID-related stress to 39,210 borrowers, amounting to INR 1,152 crores, out of which the current outstanding is INR 852 crores and 1.61% of the cases are in greater than 90-day [period]. The PD for, in on the ECL front, the PD for Stage 1 is 7.34% as against 7.33% in December quarter. For Stage 2, it was 21.72% as against 21.75% in the previous quarter. The LGD was 44.66% as against 45% in December quarter.
We are carrying an excess provision over the IRAC requirements by INR 6,499 crores, and the capital adequacy was strong at 22.97%, out of which Tier-I was 20.70%. No other further data point from my side. Thanks.
Yeah, we can open to question answer now.
Thank you. Ladies and gentlemen, we will now begin with the question and answer session. Anyone wishing to ask a question may please press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Rikin Shah from Credit Suisse. Please go ahead.
Thank you for the opportunity. I have four questions. The first one is on disbursements. Of course, they have been very strong in the last few quarters. But we note that the share of new vehicles in the overall loan mix has now almost halved to 5% from 10% two years ago. Just wanted to get your insights into as to when do you see the demand for new vehicles recovering and if at all the replacement demand could show up in FY 2023. The second question is on the margins.
Given that your new paper issuances are still happening around at 7.5% for three-year tenure, do you still expect the incremental funding cost or overall funding cost to kind of move down? Thirdly, the tax rate seems to have been low around 20% in this quarter. Any specific reason for that? Lastly, fourth, what is the total outstanding amount of ECLGS disbursements that we have made so far? That's all from my end.
Yeah. To start with, on the new vehicle, see, we had virtually slowed down on lending new vehicle for last three years. When the economic indicators indicated that the market is going to slow down, we had tightened our norms on the new vehicle because in the recent economic condition, the repayment on the new vehicle, which is high ticket size, becomes challenging. Because we had slowed down for last three years, the overall AUM of new vehicle has come down. If you look at last quarter's disbursement, we have disbursed more than INR 800 crore for new vehicle, which is much higher compared to the previous year of around INR 600 crore in the same quarter.
Now onwards I feel the new vehicle lending will go up or be part of our lending. The demand for new vehicle also picking up. Typically small operators, they buy new vehicle only when the economic indicators are very good and the used vehicle price go much beyond their comfort. That's how the smaller operators get into new vehicle. Otherwise, typically, large fleet operators buy new vehicle and keep cycling. Our new vehicle lending will definitely increase year- on- year.
The taxation front, we had a reversal of around INR 82 crore on account of early years provision, which was no longer required, and that gave a benefit for a lower tax in the current quarter. As far as the ECLGS loans are concerned, okay, we don't have the figure right now. You can contact Mr. Sanjay. He will help you out with the figures.
On the reserve.
On the cost of funds, yeah, what you are saying is right. The debt capital market instruments cost can come down, but that component of what incremental funds we are raising is not very significant. We raised only INR 2,000 crore in Q4 versus overall borrowing of INR 15,000 crore. A large mobilization through bank loans, securitization and retail deposit. That doesn't have a significant cost implication even if it comes down. We will be looking at whether we can bring down cost from other sources also. It may not have very significant impact, but yes, there will be some cost reduction which can happen.
Thank you.
Thank you. The next question is from the line of Shalini Vasantha from DSP Mutual Fund. Please go ahead.
Good morning. Hi, this is Vivek Ramakrishnan. Congratulations on a good performance. My first question is to Umesh Revankar, and that's on the new CV sales. From what we understood, the economic indicators were weak and therefore this new CV truck operators could not meet their EMI commitments and so on, and so there was a lot of lull. What do you feel is changing on the ground that gives you hope that the operating efficiency will be high going forward, and how is the current operating efficiency and ability to pass on fuel price hikes? That's the question for Umesh Revankar. Other question is for Parag Sharma. Congratulations on this good shift to FD. How do you price your FD?
Is it off a benchmark in terms of a SBI rate or something like that? Or do you do it as a demand supply where you kind of attract customers with higher rates and then work on stickiness? Thank you.
Yeah. See, as far as the new vehicle is concerned, we have witnessed some demand coming back on the new vehicle, mainly because see what happens is the vehicle sales are in a cycle. If you go back to the last 20 years, you would have seen that the new vehicle sales come down to a level, and as the economy improves or as the availability of the commercial vehicle reduces in the market, then automatically the freight rate goes up. See, this happens, this happened in 2012, where the 2010-2012, when the new vehicle sales went up significantly in the these two years to three years. Then, again from 2015-2017, again it went up. It comes in a cycle.
Now I feel the cycle we have started and the new vehicle sales has to go up because last four years the number of vehicles sold has come down. Since Indian economies keep growing, you need certain number of vehicle every time when there is growth. In that, my estimation is the new vehicle cycle has already started. Because of the other economic issues or reason, it has not picked up. As you rightly put up, the fuel cost or the fuel price, that has an impact on the new vehicles buying. Because unless people are confident of passing it on to consumer, nobody will buy a new vehicle.
Right now, I believe the ability to pass on is there, and whatever the increase you have seen in the last two months. Almost everything is passed on to the end consumer or the shipper is bearing it. None of them have put pressure on the transport operator as of now. I feel that in the recovery stage, normally it gets passed on to the end consumers and therefore the inflation goes up. If the food price is up today, it's mainly because transportation cost is high, not actually because the food cost at the farm or at the production is high. It is absorbed by the end consumer. I think the new vehicle cycle has already started, and because of some reason, like geopolitical issues and crude price, it is getting little delayed.
Next three years, the new vehicle sales should only go up from here. The next question, Parag.
Deposits. Pricing. For the pricing, what we are saying is rate will be benchmarked to not strictly to the bank rates, because bank rates have gone up and we have actually reduced our FD rates last year and not subsequently increased. It will also factor in the peer group pricing, and then we will take a call. As of now, what we have done differently is activate the branch network for deposit mobilization. I think more to do with our connect with the customers and then we are able to increase our portfolio. I think over last one year the cost has come down, the portfolio cost has come down by around 50 basis points and we do expect some cost reduction further in deposits also.
Amazing. Amazing, sir. Congratulations and all the best. That's all from my side, sir.
Okay.
Thank you. The next question is from the line of Abiram Iyer from Deutsche CIB Centre Private Limited. Please go ahead.
Hello sir. Congratulations on good set of results. I just wanted to sort of ask, regarding, you know, the cash flow for this quarter. From what I can see, the cash has gone down by around INR 18 billion. Debt has increased by around INR 18 billion, and that seems to sort of cover up, you know, the increase in AUM and the increase in investments. Just wanted to know regarding, you know, the operating income that the company has received. Is there any non-cash component here that we are missing?
Maybe, okay, we'll take this question offline because it will require involve certain considerations. You can contact Mr. Sanjay. He'll help you out in resolving this.
Got it, sir. The second thing that I wanted to ask was, are the sort of securitization, securitized assets, that's basically the company has been doing or pertaining to the AUM has gone down by around like 18% year-on-year. Is this because there is less appetite among the banks for securitization right now or is this direct company policy to sort of increase their own balance sheet assets?
No, in fact, securitization also according to the new accounting standard continues. Securitized assets also continue to be on balance sheet. On AUM on balance sheet, the assets do count. Appetite wise, I don't think there is any dearth of lenders' interest in this instrument. We have been conscious of the fact that it should not be a substantial source of funding to us. It should be at around 20% and not beyond that. Though we do get cost benefit here because of priority sector tag to the portfolio. There has been also RBI on lending for priority sector benefit which is available to banks and banks have resorted to on lending on balance sheet rather than doing securitization. I don't think there is a demand which is an issue.
It is more to do with our policy of not reaching a particular level of reliance on one particular source.
Got it, sir. Got it. Thank you.
Thank you. The next question is from the line of Shubhranshu Mishra from Systematix Group. Please go ahead.
Hi, sir. Good morning. Thank you for the opportunity. Sir, couple of questions on the disbursement and used vehicle. If you can please put out the number for the number of loans that we have disbursed in this quarter. What I'm trying to get at is what's the total population of commercial vehicles and how much we do on a monthly run rate basis or a quarterly run rate basis in terms of number of loans that we disbursed as a first. Second is on the used vehicle. We have been speaking about the prices going up. Any specific use cases in used vehicles where the prices have been going up or any variation where the prices have gone up by a few a bigger number than 20%, sir?
If you can speak, get more color on the used vehicle demand across use cases, sir? Thanks.
See, used vehicle prices, if you look at some of the vehicles where the recent prices have gone up significantly are in the SCVs, small commercial vehicle. The small commercial vehicle, even the new vehicle prices have gone up by 35% over the last two years. One is because of the change in the BS-VI norms and second is because of the steel price. The vehicles like Dost or the Ace, that kind of a vehicle, the prices have gone up steeply, and the used vehicle price also gone up steeply to around 30%, there.
Even in the ICV vehicles, which is around 9-ton, 8-ton to 9-ton vehicles, whether it's Eicher or Tata or even Leyland and even BharatBenz, there also prices have gone up by 25%-30% in new and also in the used. These are the vehicles where the resale prices are high. The total population of vehicles in India is around 1 crore, 10 lakh. You can get from the SIAM, state-wise detail on the registered number of registered vehicle across the country, and that will give you the indication on total, used vehicle population in India in commercial vehicle. If you look at the passenger vehicle, passenger vehicle will be much, much, larger. It will be at least, 3x-4x larger than the commercial vehicle.
Within the passenger vehicle, at least one-third of the passenger vehicle will be used for transportation purpose. That again, number we need to capture. In the tractor, total tractors that have been registered is around 72-75 lakhs across the country. That gives you the total population of the used vehicle in India. Apart from that, you also have a construction equipment. Some are registered, some are not registered. The construction equipment which are typically having wheels are registered, but construction equipment without wheels are not registered. You may not get data through the registration authority. That is the total size of the used vehicle. Number of vehicle financed by us, I will ask Sanjay to be in touch with you. Sanjay will give you the number.
Sure, sir. Thank you so much.
Thank you. The next question is on the line of Akshay Ashok from Prabhudas Lilladher. Please go ahead.
Yeah, hi, sir. Congratulations on a strong set of numbers. Sir, I just had a few questions. What is your strategy regarding the business loans, working capital loans? What is your strategy regarding branch openings? Will there be a branch expansion now that the economy is doing well and, you know, when the sales are doing well? What is your strategy regarding co-lending? Are you planning to enter into co-lending agreements with any of your banks to increase your book at a quite fast pace? Even, you know, raising funds will become easier due to co-lendings. That's it.
See, as far as our branch opening strategy is normally, what happens is we have over the last 10 years invested on opening of rural centers, which are no-cost branches, where the rents are very low in the rural area. Over the 10 years, these rural centers have been converted into branches. We are not directly opening any branches now. Whatever the rural center areas where we cross at least 400 or 500 members of customers, then we open a branch. Because for servicing them, we need to have a full-fledged branch once we cross a particular member base. That is the strategy we have. We have another 775 rural center. You can say that these, all these are potential branches.
Since merger is already announced, and we also would like to look at the Shriram City Union branches. Depending upon the Shriram City Union branches location and potential growth and scope for putting the businesses together, we've not opened too many new branches. Right now, whatever we have opened is the rural center conversion. All India, there are around 9,000 potential locations as per our calculation for doing business. We need not open in all the places, as we are also strengthening our digital play. Some of the business will come through digital mode.
Okay.
The other question is?
Co-origination.
Co-origination, we have been, we have done co-origination in the past. It is not that we have not done. When the co-origination policy came from RBI, before policy came, we had tied up with a few banks. When the policy came, they did not allow the deposit-taking NBFC for co-origination, which in the last year they have now allowed even the deposit-taking NBFC. This interim period, we have not signed up with any bank, but we are talking to bank. Wherever there is a scope and opportunity where both it helps banks and us, we are open to for co-origination.
Particularly for new vehicles.
Mostly for new vehicles.
Got it. Okay. Thank you so much. Thank you.
Thank you. The next question is on the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yes, sir. Good morning. Thank you for taking the question, and congratulations on the good set of numbers. Two or three questions. Firstly, I mean, if I look at the spread or rather the exit spread that they reported in Q4, I mean, they are probably, I would say the highest in the last decade. I mean, just wanted to understand, are there any one-offs in the interest income item potentially from write-backs of interest income, given that we've seen a very strong improvement in asset quality. That's my first question. What are the sustainable spreads and margins that you are looking for in the next financial year? The second question is, sir, I mean, congratulations on a very strong improvement in asset quality.
I mean, if I do that back-of-the-envelope calculation, assuming that P&L credit costs are a combination of your provisions and write-offs, the write-off number looks slightly elevated. If you can share what was the quantum of write-offs during the quarter, and were there any loans which were sold to ARCs during the quarter? Lastly, given that fuel prices are up about 10%, we're just kind of trying to understand what impact it will have on the collections and demand going ahead. If you could just kind of share your thoughts on these two questions. Thank you.
On the interest income, there has been some write backs on account of the NPAs coming down from 8.4% - 7.07%. That is around INR 100 crore. If you exclude that from an income of incremental income of INR 244 crore, the difference is the actual growth in income in the current quarter. As regards the write-offs, we wrote off INR 1,420 crore, and we got a credit of INR 709 crore from the provision. The net write-off during the quarter was of INR 761 crore. That was the impact on the P&L. The last question, so you'll take it.
Fuel prices and guidance on margins.
Fuel price is going up as long as we are able to pass on to the customer. The truckers are very comfortable. I don't think at any point of time, because when you transport any perishable, automatically it gets passed on to the end consumer or your day-to-day essentials. Only when the industrial goods transportation is there, then there is a long contract. Most of the contract obligation also has the fuel cost as one of the what you call parameters for fixing the freight rates. Most of the contracts today are including the fuel price level for a particular level of contractual obligation. I think it has no impact on the transporters per se.
Only thing is, sale of new vehicle will come down whenever there is the viability issue for the transportation. The demand for the existing vehicle automatically go up, and people have to pay the price for the transportation. I don't think existing operators will have any kind of a challenge as far as the operating it is profitable.
Thank you, sir. Sir, if I may squeeze in this one last follow-up question. I mean, I understand, contractual obligations will be more pertinent for some of the larger fleet operators. Sir, the customer segment or the clientele that you have, which is the owner-driver kind of a segment, will they also be able to pass on the higher fuel costs to the customers? That's one. Sir, I mean, lastly, I think during the opening remarks, you had suggested that we're looking at 15% growth for the combined merged entity and 12% for the CV business. I mean, just kind of trying to understand, does these projections also include some of the new product segments that you are kind of looking to enter in FY 2023?
We are not planning to enter into any new product segment in this financial year, as a combined entity or on a standalone basis. The increase of 12% is a factor in the increase in the unit price, that is vehicle price and equipment prices. That has gone up by 25%-30%. Replacement, whenever a person buys a new vehicle or a used vehicle, as a replacement of existing vehicle, he has to buy a product which is around 25%-30% more costly. Our ticket will automatically go up to that extent. In the 12% increase, maybe 50% is the cost, the ticket size that going up, that helps. Adding of new customer will be only 5%-6%.
Overall 12% can be easily reached. As far as the individual small operator is concerned, normally what happens, the way a transportation segment operates is the large fleet operators have around 20% of the vehicle, of the total requirement. They have only 20%, 80% is the market. Vehicles that's being provided by the agent or broker or individuals, they come in. Now, this 80% of the people have an option of plying the vehicle on that particular offer rate offered by the transporter or not. If they feel it is not remunerative, they will not ply the vehicle. Because not plying the vehicle, they save on the operating cost at least.
Automatically, what happens when the 80% of the vehicles are supplied, the transporters have to give a viable or the remunerative price to the truckers. Even if the 5% of the truckers refuse to transport, automatically there is a pressure on the transporter to increase the price. The individuals are having the option of not plying. That is the biggest strength for them, and automatically they get a remunerative price. It is not that they are at a weak wicket all the time.
Thank you so much, sir. This is very, very useful. Sir, wish you and your team the very best.
Thank you. The next question is from the line of Sanket Chheda from BMK Securities. Please go ahead.
Yeah, hi, sir. My question was on liquidity. We might have mentioned that we'll continue with this liquidity level, because earlier we had guided that it will come down in Q3, Q4 with the growth coming in and collection efficiency also improving. Why have we not reduced the liquidity buffer? Maybe why are we saying that we would continue with the fixed rates level?
I think Parag has already answered it, but I would like to repeat it. See, for one quarter, this quarter, the board has suggested because of the geopolitical tension to have a liquidity for at least one quarter now. Post that, there are some large maturity, which we would be paying, and automatically the liquidity would be coming down from six months to maybe five months and subsequently to four months. That's what we anticipate. We feel that being very conservative and transition to be smooth from six months the maturity security to around three months, which has been the practice earlier.
Sir, on write-off policy, now this quarter we have utilized INR 800 crore and still the COVID pool stands at about INR 2,000 crore. Do we expect any accelerated write-offs in the coming quarters also? Now you are comfortable with the stage that it is right now, the levels at which it is right now.
Yeah, there could be write-off and write-back both in this year. Because over the one year, we would like to see how this portfolio, which has been impacted by the COVID, will behave. Because the portfolio that had impacted negatively in the COVID was mostly the passenger transportation. Passenger transportation was badly hit, and we have identified that and we have taken action in this quarter. But this full year will be available for us to look into the segment much more keenly and observe, and then we'll take action accordingly. There is option for both write-off and write-back both.
Lastly, sir, on growth, our disbursement in seasonally strong Q3, Q4 has improved, but not that meaningfully as we have been witnessing earlier second half. Now heading into, say, first half of FY 2023, which is usually seasonally weak first half, but since we are just coming out of crisis, do we expect a similar momentum of, say, Q3, Q4 continuing in the next few quarters as well? In terms of-
Normally, first half and second half is 40-60. That's how it plays out. Because the cycle, the Indian economic cycle is like that. In second half, during the festive period, then you have the summer crop coming, then you have the winter crop coming in the second half. That creates a lot of activity and lot of demand, and consumption goes up and demand, there is more trade demand. In the first half, normally you have some uncertainty due to the monsoon and due to heavy monsoon in certain location, activity comes down. Even the government spend also comes down in the first half of the year. The government spend normally begins from August and picks up in the second half.
These are all the reasons the second half is always stronger than the first half. Whether this first half will be much stronger, I feel still the crude price is going to be creating some doubt in people's minds. Nobody will rush to buy a new vehicle, at least for now, when every alternate days the fuel price is going up. Unless people see the stability, people won't buy a new vehicle. We do not know whether the fuel price will stop at this level or it keep increasing. If it keep increasing, whether the consumption level is the same. There is some uncertainty. The new vehicle demand will be suppressed in the first, at least till the fuel price keep going up.
I understand that and in new vehicles anyways we were not being disbursing and my question was largely subject to this that in this second half we have not been so strong on growth. 2.2% in last quarter and 2% in this quarter. I was asking rather that this level of disbursement should continue in first and second quarter also or maybe it could dip from here on since the seasonality in first half will be there.
Q4 - Q1 this year definitely it will be lesser.
Okay, sir. Got it. Thank you.
Thank you. The next question is on the line of Piran Engineer from CLSA. Please go ahead.
Yeah, good morning, sir. Congrats on the quarter. Just a couple of pending questions. Firstly, out of the INR 1,500 crore write-off this quarter, how much was for NPL assets versus standard assets?
Out of INR 1,047 crore of write-off, the NPL assets were INR 1,216 crore.
Secondly, you know, out of our 21 lakh customers, how many ballpark would have been new to Shriram versus say existing to Shriram, a ballpark mix? Has that mix also changed in the last two, three years?
New customers.
You see, typically if you look at the customer, new to customers, new to Shriram would be around 30%-35% and 65% of them would be repeat customer who will be coming back after completing their existing loan. Our customers may even come back after two years after completing the loan. That also keeps happening. We have a strong customer relationship. The customer will come back at any point of time. In the used vehicle market, Shriram is the most popular name. Anyone want to buy or finance a new vehicle, they always think of Shriram first. That's how we have large set customer base who keeps coming back.
Around 30% of the customer will be new to the business and first time buyer or first time to Shriram.
Okay. Has that ratio changed, sir, in the last two, three years?
No, it won't. It is not changed significantly.
Okay. Sir, just another broad industry question. Out of, you know, there are 85 lakh CVs in India, as per my guess. Typically in a year how many get scrapped? Basically how many get off the roads?
Our thumb rule I can say is more than 20 years old vehicle typically get scrapped and it could be around 3% of the vehicle population that gets scrapped in a year. That is what. Because even I am looking at the SIAM data. The SIAM data when you look at the vehicles that gets scrapped that details are not there in the RTOs. I can only talk about thumb rule, I cannot come out proper statistics or data. SIAM can help if at all they have data.
Okay. That INR 80 lakh-INR 85 lakh now is ballpark correct, right?
1 crore 10 lakh is the vehicle population which are running, which are at least paying tax.
Okay. INR 1.10 crore. Fine, sir. That's great. Thank you, sir. That's all from my end. Thank you and all the best.
Thank you. The next question is from the line of Krishnendu Saha from Quantum AMC. Please go ahead.
Hello. Hi, good evening. Hello. Am I on? Yeah, yeah. Just a couple of things to understand. The LGD is going up from 39% - 40%, 45%, now 44%. Yeah, I know we provide on a risk basis, but how do we see that going ahead, will throw some light on it. Our next question is on yield. To understand the yield and the spreads on the news made a little bit better. You said AUM would grow by 12%. The rural AUM is already growing by 12%. It is already 50% plus of the books in the last four quarters, which is a better yielding book. Working capital loan and others have not kicked in to the higher levels before.
How do we see the yields of the assets going ahead? With that, how does the liability profile look like because we have, with the rising interest rates, how do we see the liability profile going ahead? Because some color from you to lead this. Thank you.
As far as the yield is concerned, we focus on our net interest margin around 7%. Sometimes, if the borrowing cost comes down, we pass on some benefit to the customer also because, if at all, we feel that certain kind of customers need to be given a little concession rate.
I see.
It will be on the net interest margin, not exactly on yield. You are right, in the rural segment, you get a higher yield. There is a better opportunity for us to lend at a higher rate. That as rural expands, we do use that opportunity. As I was telling you, the focus will be more on net interest margin. Some benefit will even in the rural area be passed on to the customers.
That means understand that at least 10.5% of the NIM could be maintained on a steady basis for the next one year, one and half years, two years.
You are right. You are right.
Okay. What was the?
We are currently maintaining 44.68% and the pre-COVID levels was less than 33%. We hope that maybe in the next couple of years it will come back to the normalcy once this COVID is behind us. 1.5% will be removed, then it should come back to the 33% level.
35%. Sorry, sir, if I must ask you, what was the incremental cost of borrowing for us?
Incremental.
Cost of borrowing is around 7.37%.
7.5%, uh yeah, 7.30% -7.5% .
7.30%, 7.5%. I suppose 80% of our book is fixed, right?
Yes.
Yes.
80% of the borrowing is fixed.
Thanks.
Thank you. The next question is from the line of Mr. Nischint Chawathe from Kotak Securities. Please go ahead.
Yeah, hi. Good morning. Two questions. One is on the liquidity front. You know, given the new RBI norms are sort of getting implemented in phases, how much scope do you really have to run down the excess liquidity on the balance sheet?
Understand your HQLA requirement. See, there are certain categories of liquidity which we are maintaining, which is not counted for HQLA. Be it bank deposit, be it CDLO, investment, which are not counted for HQLA. I don't think bringing down liquidity will have any impact on our HQLA need to maintain high liquidity. We have sufficient scope. Any which ways, what we are maintaining also is sufficiently high, 148% versus requirements which will go up to 100%. I don't think there is any direct linkage there. We can bring it down to, if you look at the absolute number, we are at INR 17,000 crore which can come down to around INR 10,000 crore or maybe slightly less than that.
That has been our policy, even in the past, to maintain three months of a liability repayment. That works out to close to around INR8,500 crores-INR9,000 crores range . That should be the liquidity, and that will still meet the HQLA requirement as per RBI.
You mean three months of gross repayments, right?
The INR8,5000 crores is gross repayments.
That's right. Thank you. The other one was, you know, on growth guidance, whereas, you know, you mentioned that you're looking at a 12% AUM growth next year, which includes, you know, half of it as a price inflation and probably half of it is new customer addition. I mean, are we kind of, you know, saying that, you know, if product inflation is not high, probably 24%-25%, then your growth should be somewhere in 6%, 7%, 8%?
Product inflation is already in place because all the vehicle prices have gone up by 25%. I'm talking about a replacement. A customer who is replacing in next one year, he is going to replace a vehicle which is 25% costlier. Automatically that gets factored in. It is not year on year increase. It is already. The vehicle prices are already increased. Automatically you get that 5%-6% growth automatically when the customer buys a replacement vehicle.
Sure. The thing is that it may not again go up. It may not go up again 25% in FY 2024.
Please, please understand. A customer who have purchased a vehicle four years back.
Yes.
Now he's completed the loan and he's buying another vehicle. Four years back the price was low and he is replacing a vehicle which is 30% more. I'm saying that the product price is already up. Whenever a person buys a vehicle, he has to buy a vehicle which is 30% or 20% higher. The next one year, whatever vehicle we finance will be expensive by 20%-30%. Automatically you get 5%-6% increase.
this you're saying should be like an annual phenomenon of 20% prices.
It could be for another one year only. It may not be, permanent.
That's what my point is that, you know, what happens after that? After that.
There will be. See, we need to create more reach. The scope is very high. We are less than 30% in used vehicle market. 70% of the market is open. Out of that 70%, 20% is by organized sector like other NBFCs and banks who are in used vehicles. Nearly 50% of the market is by unorganized players. That is the market we keep hiring in every time.
Yeah. Because you mentioned that your new customer acquisition is around 5%-6% next year. Probably what you're saying is that it can accelerate probably the following year.
Yeah, it will accelerate because of the merger. We'll have more reach. We have a larger number of employees. Because the synergy benefit, we would be able to expand and growth rate can be much higher.
Sure. Finally, if you could give some update on the merger, you know, in terms of operationally, how things are playing out right now. You know, how are your plans in terms of, you know, exploiting the synergies working? Some developments versus when we spoke last.
Yeah. See, there is good progress. The pilot branches already started operating. The product introduction will happen in the next stage. That should happen in a month or two time. As far as the leadership is concerned, the leadership is already looking into geographical units. We have made five geographical units, and the geographical head, the JMDs are already looking into their respective geography. They will take care of the further product introduction and the growth of the business and the synergy. Everything will be looked at by them. I feel it is in the right progress operationally.
In the back office, and HR integration is almost done, so we exactly know what we need to do in the HR. As far as the technology integration is concerned, even though we need to keep this platform separately till the legal merger, we are fully ready.
Sure. Thank you.
Thank you. The next question is from the line of Oon Jin Chng from HPS Investment Partners. Please go ahead.
Hello. Hi. Hi, everyone. Thank you for the call. Most of my questions have been answered. I just have a couple of follow-up questions. Just to first off on replacement you mentioned, I just wanna get a sense, what's the average vehicle in your portfolio right now? Do you have a sense as well, what is the rate of replacement in this current portfolio? That's my first question.
See the replacement, when I say replacement, the customers keep either adding more number of vehicle or they replace existing vehicle once the loan is completed. It all depends upon the economic activity. Also sometimes it also depends upon the new vehicle sale. Because higher the new vehicle sale, the higher churning will be there in the used vehicle. Also this new vehicle will come into the used vehicle market. The churning can in the higher economic growth scenario, the churning can be as fast as every two years or three years. When economy goes slow, the churning can come down, and it can be every three years or four years or even five years.
Now, in the last three to four years, if you look at the new vehicle, many of the people are holding on to the new vehicle up to five to six years. Earlier, they would hold the vehicle till only three to four years. All this is dependent upon the economic recovery and demand for the movement of the goods in the economy. If I can't give a ballpark number, but it keeps changing depending upon the economic growth of the country.
Understood. Do you have the sense, I'm not sure do you collect this data, but do you have a sense of what is the fleet utilization at this moment for your customers or the operators? Is there a data that shows what's the utilization right now?
Utilization levels are very high now. In fact, there is a shortage of vehicles for some of the segments. Because as I understand, the people say it is because of the heat wave, I'm not very sure. There is a shortage of vehicles, and there is a big demand. In many places, vehicles are not available. Fleet utilization levels are at a peak now. Even some of the industry bodies have asked me whether I can supply vehicles. I said I'm only a lender, I'm not a supplier of vehicle. There are some aggregators which are coming in who are trying to find a way to smooth supply of vehicle throughout the year. Most of these aggregators are local, not all India level.
I feel right now the utilization levels are very high, and there is a shortage of vehicle in certain pockets. It could be due to high seasonal demand because of the fruits, especially mango and other fruits normally is in high demand now throughout the country. Also the high wheat movement. Wheat movement in the entire northern belt and central belt, the wheat movement is in the peak now, so because of that. Right now it is utilization levels are at very high.
Got it. I suppose that lends into the argument that the operators are able to pass on the increase in input costs, for example, fuel.
Yes, yes. They're easily able to pass it on now.
Can I check as well, just to confirm, you mentioned that the increase in the vehicle value prices, the used vehicles up 25%-30%. The LTV of the loan has come down below 70%. Is that right? Did I hear that right or?
Our LTV has been below 70% right from the beginning. We have tightened the norm beginning last three years and not because of the increase in value of the vehicle. The LTV has been curtailed at less than 70% for last three years, and that is continuing. Even where the vehicle prices have gone up, the LTV is maintained at the same level but not decreased further due to the increase in value of the vehicle.
Understood. My last question is around refinancing. You mentioned that you have a year's dollar bond coming due end of this year, which I see is October 2022 of $750 million US dollars. What's your refinancing plan on this?
We will look at all opportunities. Domestic liquidity is good. We are carrying liquidity buffers we indicated earlier. We will be able to easily meet it. No issues regarding domestic borrowing and repaying this maturity. In case markets are okay, if there is an opportunity to borrow offshore, we will look at that point of time. As of now, domestic liquidity is good enough, and we have sufficient surplus liquidity where we can easily manage the liability. Not an issue at all.
Got it. Thank you very much. That's all for me. Congratulations again on a good quarter.
Thank you. The next question is from the line of Param Subrahmanian from Equity Research. Please go ahead.
Hi, thank you for the opportunity. Most of my questions have been answered. Just two from my side. Firstly on the OpEx. If I look at the OpEx, it has been rather flattish for the last two years. Of course, disbursements and collections have come back for the company. What is the reason for this continuing? You know, we already operate a leaner cost to income than most peers. That's my first question on OpEx. Secondly, on AUM growth. If I look at the headline AUM growth number, that's still, you know, hovering around that 8% mark, and you've already highlighted how its utilization levels are very high. Demand is high. Rates are doing well.
You know, any reason why this headline AUM growth is still, you know, at a single digit sort of level and why you are guiding for still only 12% growth for the next year? Yeah, that's it from me. Thanks.
Yeah. It's first of all, we are anticipating a 12% growth because of the certain uncertainties which is still continuing because of the geopolitical issues. We do not know how long the crude price will remain at present level and whether it will go up further. We are little circumspect on that aspect. 12% is something which we feel a comfortable growth for us. Normally, we don't expand business overnight because we recruit, train people and then expand business. We don't laterally recruit and expand business. That's the one reason. As far as the OpEx is concerned, we have managed it well for last two, three years, trying to be as frugal as possible.
We always give guidance of 22%-23% on the OpEx because as business grows then definitely there will be some other expenses including the cost of acquisition of new technology, new platform. All those will be there. With all this into consideration, we give 22%-23% guidance.
This is cost to income or OpEx growth?
Yeah, cost to income.
Okay. Got it. Thanks. That's it from me.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Umesh Revankar, Vice Chairman and Managing Director, for his closing comments.
Yeah, thank you. Thank you for joining. This quarter we have come out with a good set of numbers, and we are hoping that with economic recovery is visible, at least in India and budget being very strong on the infrastructure spend, we are confident that momentum will be maintained throughout the next financial year. When we meet next time, we'll again examine-
This conference is scheduled to be disconnected automatically in nine minutes.
99 minutes.
Sir, should I conclude the call? Hello? Ladies and gentlemen.
Hello.
Yes, sir. Please proceed. Hello. Sir, you're reconnected.
It's okay now.
Okay, sir. I'll conclude the call. Thank you. Ladies and gentlemen, on behalf of Shriram Transport Finance, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.
Have a nice night.