Our collections have doubled each month during April-June: M&M Finance MD

Ramesh Iyer, MD and CEO, Mahindra and Mahindra Financial Services
Apart from a pick-up in vehicle demand, excluding medium and heavy commercial vehicles, a buoyant rural market is also helping in collections in a big way, says Ramesh Iyer vice-chairman and managing director of Mahindra and Mahindra Financial Services (M&M Finance). Talking about the pricing of the firm's upcoming right issue, Iyer asserts in an interview with Shreepad S Aute, that the company isn't raising capital due to roadblocks. Edited excerpts:

Disbursements continue to decline in the June 2020 quarter (Q1). How is the situation evolving after March?

It is unreasonable to compare on a quarterly basis as the situation is uncertain. But demand for tractors is definitely picking up and also for pre-owned and small commercial vehicles and cars. However, the medium and heavy commercial vehicle segment is under pressure and we believe it will take little longer (for it to revive). The larger disbursements in Q1 were mainly done in June and not all three months together. I think availability is a huge challenges. OEMs (original equipment manufacturers) aren't able to sufficiently supply due to their own production and supply constraints.

The rural economy is in relatively good shape and is recovering faster than the urban. How do you see this benefiting M&M Finance?

Rural sentiments are definitely turning positive. Apart from good tractor demand, 40 per cent of our customers who had availed moratorium in the first phase, have repaid their instalments in June. This is a very strong indication that rural cash flow is improving. The improvement in rural collections has come at the back of an excellent harvest. During April, May and June, our collections have doubled each month. So, it has helped collection big time. Above 90 per cent of our standalone loan book is rural. I am convinced that the rural turnaround story is very clearly visible with above average monsoon expectations, government initiatives, etc.

So, would the September 2020 quarter be way better than Q1? What is your current moratorium status?

July has so far been good in terms of demand and collections. But the September quarter would be too early as July and August will be moratorium-linked months and it would also be the monsoon period. As I have been saying all along, one can expect to see a lot of positivity post October. Demand will be very high during the festive season. So, the December and March quarters will definitely show buoyancy. As for the moratorium, currently 40-50 per cent of our loan book and customers are under moratorium but they are also repaying their dues.

What is your cost-optimisation strategy because Q1 saw a very sharp improvement in cost-to-income ratio?

One should not get fully guided by Q1 because there was automatic reduction in many cost items such as travelling. Such a reduction is not necessarily permanent. However, the focus on cost reduction has been strong. We have looked at every line item such as rent, security services, outsourced agency, advertising and branding, etc. and have been able to bring down such costs by at least 15-20 per cent, which is sustainable and permanent.  

What should one read into the pricing of your upcoming right issue, which is at an over 75 per cent discount to M&M Finance’s current market price?

One should not look at it from a current market price perspective. This is our silver jubilee year. So, this is our way of thanking our shareholders for the support they've provided all through this period. We are not raising capital because we are facing roadblocks; we have sufficient capital in place. We are very rural focused and strongly believe that we will get back to 25-30 per cent growth story in a medium term. In fact, despite making excessive provision in the last two quarters, we ended up making good profits.

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