By Shashank Didmishe
At a time when cost of borrowing for non-banking finance companies (NBFC) is set to go up due to the rising interest rate cycle, Shriram Transport Finance Corporation is well protected, and vice chairman and managing director Umesh Revankar believes that the company will be able to bounce back to its pre-Covid margin levels in the current financial year.
“We are in a niche segment. We can easily pass on whatever is the cost of borrowing. There is no challenge for us to pass on to the end customer, as long as the customer is able to make a good earning out of it,” Revankar said. In fact, the cost of funds is currently cheaper than what it was three years ago as the capital market borrowing was costlier at the time, he added.
The cost of borrowing declined for the company in Q4FY22 and is now at around 8.14%. The cost is lower by around 83 basis points year-on-year and 31 bps on a sequential basis. The cost of borrowing for Q4FY22 was lower compared to the pre-Covid period, which was over 9% in FY20.
Despite rising borrowing costs, Revankar said the company will be able to maintain the net interest margin (NIM) of above 7% in FY23. The company’s margin improved throughout FY22 from 6.38% in Q1FY22 to 6.96% in Q4FY22, which was below the 7% mark, which the company had witnessed in the pre-Covid period. “We are still having advantages of better margin. So, NIM for the last quarter was 6.9% and we should be able to manage it around 7%,” Revankar said.
Revankar said the company is well placed to capitalise on the revival of the infrastructure sector. The demand for construction equipment and commercial vehicles is likely to improve because of the government’s infrastructure push. Typically, such infrastructure spending spree lasts for at least three-four years, he said.
Additionally, prices of used vehicles have gone up by 25%, which augur well for the company, Revankar said. “That has really helped people sell their existing vehicles and people are ready to pay a higher price.”
Farmers have fetched better prices for the last two-three years on account of good monsoon and better storage, resulting in an expected rise in demand for tractors, Revankar said. For the past two-three years, the demand for tractors sustained on higher levels as the farm sector performed well during the Covid.