Commercial vehicles demand will increase from September: Shriram Transport Finance MD

New Delhi | Published: March 14, 2019 2:42:13 AM

Demand for commercial vehicles will see an increase from September 2019 onward; till then, the growth and demand will remain at current levels, he said.

commercial vehicles, sriram transport financeIn the last few months, while M&HCV sales have come down, LCVs have shown consistent growth.

By Shashank Nayar and Kritika Arora

Shriram Transport Finance will look to raise funds from the international markets post the elections as it sees fairly good demand in 2019-20, managing director Umesh Revankar told Shashank Nayar and Kritika Arora. Excerpts:

Demand for commercial vehicles has been falling, how do you read the trend in 2019-20?

Demand for commercial vehicles will see an increase from September 2019 onward; till then, the growth and demand will remain at current levels. The reason for the muted growth is a slowdown in the real estate sector; so commercial vehicles (CVs) which are used to transport steel, cement etc., is seeing a lower demand. As far as we are concerned, we are confident of growing at 15% till September, following which we should grow at 20% till March.

Having raised dollar bonds worth $400 million, are you looking at more loans via ECBs?

As far as FY19 is concerned, we have exhausted the $750-million limit on external borrowings. Going by the market scenario, we might consider raising capital in April or May, if not then post elections. We have received a strong response from the international market and with approvals we can raise more than the $750 million.

Spreads on bonds are rising, making it more expensive for corporates to raise money. So, are you looking at alternative sources of borrowing?

Currently, we are able to raise NCDs from the local market at 9.5% and if I am to go to the bond market, then it will be a little more expensive. Ultimately, what is important is that if you can pass on your cost to the customer. We are going to pass the cost to the customer. We have passed on our added cost to the customer. For example, if I issue a Rs 5-lakh loan for a Rs 7-lakh vehicle, we reduce the loan amount to `4.5 lakh from `5 lakh, which will keep the EMIs at similar levels, so the ability to pay isn’t diminished. So, the quantum of loans might come down or demand might come down. If we are able to bring down our cost of liabilities, we are happy to bring it down but if we are not, then we have to live with it.

From the rural market perspective, what are the growth drivers?

The growth is there in almost all states except the central part of the country. New vehicle sales have witnessed a slowdown but the second-hand market is picking up. The demand for second-hand vehicles is all about the reach you create. So 5-10% growth in the second-hand vehicle market comes out of reach. To grow our reach, we are adding almost 200 branches.

Why has the demand of commercial vehicles (CVs) has not really picked up in February? The numbers have been more or less the same at around 87,000 units…

My understanding is that the real estate market has not gone up and much of the transport movement involves bulk items like steel, cement and other building material. Then, we also have demand coming from finished housing products like white goods – TV, refrigerator and other related items. This demand, which normally should grow with real estate sector, has also come down. That probably may take some time, say till elections or post elections. It’s uncertain at this point in time.

Secondly, the freight rates have not gone up, even though there has been some increase in fuel prices. With the increased load of 15% that the truckers are now able to carry officially due to axle load norms, profitability has also gone up only by some extent. So, freight rate per tonne not going up has not really impacted the truckers because he is able to carry more weight as money is paid on per tonne basis. So, if you are able to carry more weight officially, cost remains the same.

In the last few months, while M&HCV sales have come down, LCVs have shown consistent growth. Industry players like Tata, Ashok Leyland and Mahindra & Mahindra have also been launching I&LCVs like Furio, Guru etc…

Every developed country has a hub and spoke model, large trucks for moving bulk items and smaller trucks for distribution system. For instance, we need a heavy truck to transport material from Bombay to Delhi and smaller trucks for distribution in Noida, Faridabad. In any developed country, the ratio of heavy trucks to light commercial vehicles is 1:3, normally. For every one heavy vehicle, three LCVs are required. In India, the ratio is not even 1:2. Slowly, as the country is progressing, LCV demand is coming up. So, this growth is going to continue since it is in shortfall. It’s the last ten years’ phenomenon that different types of LCVs have come up like Tata Ace, Ashok Leyland’s Dost, Eicher 1110 and this trend will stay.

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