Govt needs to forget fiscal prudence to revive demand: Shriram Transport MD

Umesh Revankar, MD and CEO, Shriram Transport Finance
With the first half of FY21 expected to be slow for commercial vehicles and the demand for commercial vehicle not likely to revive before the Q2FY21, Umesh Revankar, MD and CEO, Shriram Transport Finance tells that to revive demand, the government needs to spend more. He adds that while this might turn out to be inflationary, this is what is required at this point in time. 

How is the demand for used and commercial vehicles?
  
There is a good demand for used vehicles in the rural market, however, I don't think there will be sudden demand for new vehicles. The demand for new vehicles will depend on infrastructure activity and revival of the real estate sector because these are the two industries which require bulk material like cement and steel. Since rains got delayed, mining activities were also postponed. The steps taken by government will have a positive impact not before June and then agriculture production will be at an all-time high, which will also have a positive impact. As far as semi urban rural demand is concerned, I am not sure about the revival of real estate sector. Last quarter of FY20 is looking better from the last two quarters of FY20. 

What are your fundraising plans? 

For the next quarter, we will come up with non-convertible debentures (NCD) issues locally and we may raise some offshore funds also. It will be somewhere between Rs 500 to Rs 1,000 crore. We have not decided the offshore quantum. 

Are you achieving your 15 per cent assets under management (AUM) target for FY20? 

We are growing at an AUM of 4 to 5 per cent in first two quarters. At the start of FY20 we targeted 15 per cent AUM for the year and we may end up at 10 per cent AUM for the whole year because the last quarter looks good. We see good demand on the back of higher agriculture output which will push the overall income of the rural areas and will help consumption there. We see better demand from January till March. 

What do you think the government can do to push consumption?

The government has announced a Rs 25,000 crore package for real estate and that is going to be the key. They should start with Rs 5,000 crore immediately to support some of the real estate projects which need completion and then Rs 25,000 crore should be consumed as soon as possible. If this fund gets activated quickly, the real estate sector will get a kick start. Under the partial guarantee scheme Rs 1 trillion is to be disbursed before December, but because of some technical issues it has not started. If the government pushes that and a majority of the fund gets disbursed, it will be good. At least by the end of this month, around Rs 40,000 crore will be sanctioned. The government should focus on the execution of the announced packages. 

What are you budget expectations? 

Government should give exemption to second and third home buyers. Earlier, there used to be a tax exemption at whatever interest you paid for your second and third home. I think the government should look at it because home buying as an investment by the individuals has totally stopped. The government needs to encourage that. May be it can allocate a little more for completing the existing projects, may be another Rs 25,000 crore to revive the real estate sector totally. 

Do you think the Non-Banking Financial Company (NBFCs) sector pain has bottomed out and it is moving towards consolidation? 

I think NBFC pain has bottomed out. Government announcements need to be implemented fast as implementation has been a little slow. Yes, there could be some consolidation in the NBFC sector going forward because some players will change their business model and some will try to get out of the business. Many NBFCs depended on low cost funding from institutions like banks which is not likely to come and they have to look for alternative funding. I don't think banks will lend to new NBFCs without a good track record. So, they might have to possibly change the business model or may have to consolidate in next one or two years.  

How is CY2020 looking like for the business? 

As I said, the last quarter of FY20 (January to March) looks positive. But FY21 beginning looks slow for the commercial vehicle and new vehicle demand because BS VI will come with higher price and there would have been some pre buying in January to March. Therefore sales will be definitely lesser and that could be last for three to six months depending on the economy. Demand will pick up from the second half of the year. For the auto sector, especially for cars, if BS VI new models are attractive enough for consumers and consumers feel that they have new technology, then maybe they will buy and some of the new models which enter the market and looking promising. As far as mass vehicles, by which I mean vehicles which cost less than Rs 5 lakh, are concerned, their demand is not clear. 

What are the macro challenges facing the economy? 

The biggest challenge is that Rs 1 trillion of infrastructure spend that was announced by the government has seen slow progress. I don't know how it will impact the fiscal prudence of the government, but they have to spend that money. I think the government should be on the expansionary mode for two years and forget fiscal prudence to revive demand that may be inflationary, However, that is required. They need to spend more.


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