Rural economy is in relatively good shape and it is recovering faster as compared to the urban. How do you see this benefiting M&M Finance?
Rural sentiments are definitely turning positive. Besides good tractor demand, 40 per cent of our customers, who had availed moratorium in the first phase, have repaid their instalments during June. This is a very strong indication that the rural cash flow is improving. The rural collections improvement 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 comes from rural. I am very convinced that the rural turnaround story is very clearly visible with above average monsoon expectations, government initiatives, etc.
So, should one expect September quarter would be way better than Q1? What is your current moratorium status?
July, so far has been good in terms of demand and collections. But, 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 long; one can start expecting to see a lot of positivity post October. For the festive season, demand will be very high. So, December and March quarters will definitely show buoyancy. In case of moratorium, currently 40-50 per cent of our loan book and customers are under moratorium but they are also repaying their dues.
How is your cost-optimisation strategy because Q1 saw very sharp improvement in cost-to-income ratio?
One should not get fully guided by Q1 because, there had been automatic reduction in many cost items like travelling, which are not necessarily a permanent reduction. However, the focus on cost reduction has been high. We have looked at every line item like rent, security services, outsourced agency, advertising and branding, etc. and we have been able to bring down such costs by at least 15-20 per cent, which is sustainable and permanent.
What one should read into pricing of your upcoming right issue, which is 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 definitely thanking our shareholder for the support, they've provided all through this period. We are not raising capital because we are facing roadblocks. We are very rural focused and we strongly believe we will get back to 25-30 per cent growth story in a medium term and we have sufficient capital in place. In fact, despite making excessive provision in the last two quarters, we ended up making good profits.