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«MANAGEMENT: MR. UMESH REVANKAR – MANAGING DIRECTOR & CHIEF EXECUTIVE OFFICER, SHRIRAM TRANSPORT FINANCE LIMITED MR. S. SUNDER – EXECUTIVE ...»

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“Shriram Transport Finance Company Limited Q2 FY16

Earnings Conference Call”

October 29, 2015

MANAGEMENT: MR. UMESH REVANKAR – MANAGING DIRECTOR & CHIEF EXECUTIVE

OFFICER, SHRIRAM TRANSPORT FINANCE LIMITED

MR. S. SUNDER – EXECUTIVE DIRECTOR, SHRIRAM TRANSPORT

FINANCE LIMITED

MR. SANJAY MUNDRA – VICE PRESIDENT, SHRIRAM TRANSPORT

FINANCE LIMITED

MR. VINAY KELKAR – EXECUTIVE VICE PRESIDENT, SHRIRAM

TRANSPORT FINANCE LIMITED

MR. PARAG SHARMA – CHIEF FINANCIAL OFFICER & EXECUTIVE

DIRECTOR, SHRIRAM TRANSPORT FINANCE LIMITED

Page 1 of 14 Shriram Transport Finance Company Limited October 29, 2015 Moderator: Ladies and Gentlemen, Good Day and Welcome to the Shriram Transport Finance’s Q2FY16 Earnings Conference Call. As a reminder, all participants’ lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing ‘*’ then ‘0’ on your touchtone phone. I would now like to hand the call over to Mr.

Umesh Revankar - Managing Director and CEO, Shriram Transport Finance for his initial remarks. Thank you and over to you, sir.

Umesh Revankar: Thank you. Good Evening to Everyone in India and Good Morning to the Investors who have joined from US I have with me Sunder, Sanjay, Kelkar and Parag to answer specific questions. I hope everyone has had a chance to go through the investor update that has been sent to you earlier that highlights our key operational and financial metrics.

To begin with let me share some perspective on the macro. Q2 is always challenging, uncertain, and tricky quarter.

The impact of the monsoon on the performance of the economy is always uncertain and before the start of quarter we all are hopeful of good monsoon and at the end of it the excess or deficiency in the rainfall does have an impact. This year the monsoon was deficient - rainfall was short by 14% on a long-term annual average. Last year also it was short by 12%. Two consecutive year deficiency in the rainfall is something which was not seen for a very long time maybe after nearly 10 years to 12 years we are witnessing that. This had some stress on rural economy. However, the 50 bps rate cut RBI has provided some cheer. This will not onlybolster the credit environment but more importantly also help kick-start the investment cycle in our economy.

The overall rate cut in the current year now stands at 125 bps which provides a much needed impetus to rural economy allowing micro and small medium enterprise to improve their profitability and cash flow. The rate cut will make our cost of borrowing cheaper by 20 -25 basis points over the medium term. Further we also believe the lower cost of funds will entice our customers to upgrade themselves to buy or replace with new and newer vehicles. The lower fuel cost makes used vehicles still an attractive proposition at in the semi-urban and rural market. In terms of activity on account there have been some encouraging signs. We have seen Heavy Vehicle sales going up for the last several quarters especially in coal transportation, steel transportation and the LPG gas movement.

–  –  –

Now let me provide overview of our financials for the quarter. Net interest income has gone up by 18.5% that is from 1,007 crores to 1,194 crores. Net interest margin saw an improvement to 7.03 from 6.6 year-over-year and Qon-Q by 27 basis points. PAT has gone up by 12% to 338 crores from 302 crores. The gross NPLs have moved by 11 basis points to 4.18 from 4.07. The NPLs have mainly increased in the rain deficient states and rural economy.

Coming to the Equipment Finance Business, as you are aware the merger process is on and expected to complete by Q4 in this financial year. However we would like to share with you that initiatives taken over the last quarter

–  –  –

Moderator: Thank you very much, sir. Ladies and gentlemen, we will now begin the Question-and-Answer session. First question is from the line of Abhishek Kothari from Anand Rathi. Please go ahead.

Abhishek Kothari: Can I have the disbursement figures for the quarter?

Sanjay Mundra: The disbursement is 9,500 crores, New Vehicle is 967 crores, and Used Vehicle is 8,538 crores.

Abhishek Kothari: Okay. And so any capital raising plans over the next 12 months to 18 months.

Umesh Revankar: No, I do not think we need any capital as of now.

Abhishek Kothari: Okay. And sir in terms of cost to income ratio, we have seen 24.75% in the quarter. So how do we see cost to income panning out?

Umesh Revankar: I think it should remain at present level. We are adding some man power in the next two quarters - three quarters.

We believe there is good opportunity and scope for us to increase the business volume and opportunities are quite good. So we also would like to improve our outreach to the people by increasing teams on the ground. Therefore, the cost to income ratio should remain at present level. Even though our technology effort is helping us in increasing the productivity but nothing like personal touch and personal equation with the customer.





Moderator: Thank you. Next question is from the line of Sneha Gantra from Subhkam Ventures. Please go ahead.

Sneha Gantra: Sir first question is what is the outlook on the growth front for the second-half? Second question is on the asset quality are we seeing still stress because of the rain deficiency and the third question is how would be the securitization panning out for the second-half? And second question on asset quality if we are shifting to 150 DPD where do you see the gross NPA to be rising?

Umesh Revankar: See the gross NPAs have moved by 11 basis points Q-on-Q. As you rightly said it is mostly in the rain deficient states where the rural economy is under stress but I feel it will be a temporary one and hope once the winter crop is

–  –  –

Umesh Revankar: Growth see we had given a guidance of 15% in the beginning of the year. We will still maintain the 15% growth on AUM I think that is as of now we have reached 13.8 AUM growth this quarter and we should be able to easily reach 15% because second-half is normally bigger than the first-half. And on securitization front what was your question?

Sneha Gantra: What is the plan for the second-half securitization?

Umesh Revankar: Second-half, Parag any number? Another 3,500 crores we have already done 2,500 so another 3,500 crores is what we are targeting.

Sneha Gantra: And if we are moving for 150 dpd what we can expect on the rise of the gross NPA numbers?

Umesh Revankar: 150 we are moving in the last quarter.

Sneha Gantra: You are shifting actually.

Umesh Revankar: Yes. And it is likely to be around 1.2% to 1.5% more than the current numbers.

Sneha Gantra: Okay. Any branch expansion plan or employee addition plans?

Umesh Revankar: We have added around 500 people in the last quarter and we have added 30 branches. So branch expansion will continue. We should be adding around 20 to 25 every quarter. Employee addition also will continue as we are seeing good growth prospects in the second-half of the year.

Moderator: Thank you. Next question is from the line of Devam Modi from Equirus Capital Private Limited. Please go ahead.

Devam Modi: Sir you mentioned that your re-NPAs are likely to rise by around 1.2% to 1.5% this would mean that it will drive to around 30% to 40% from current levels, correct?

–  –  –

Devam Modi: Correct. And sir, what kind of G&PA levels are there because we understand the current numbers do not include the subsidiary numbers. So what kind G&PA levels are there with subsidiary in terms of absolute number right now?

Umesh Revankar: The NPAs in the subsidiary at 150 days is around 1,100 crores.

Devam Modi: Okay. And what would be I mean are we sort of seeing any impact of the poor I mean there have been three consecutive negative cash crop cycles per se. So is this impacting generally across geographies or your only those four states you are seeing more impact on how is it panning out because of that reason?

–  –  –

Umesh Revankar: Right now these four states are impacted and if you go back to last year MP was worst hit but MP is better this year. So this rain deficiency across different states keep varying so, it is not consistently at one place. So the rainfall patterns keep shifting and today the farmers are also becoming very progressive and they are also keeps shifting their crop pattern. So I expect the farmers to find the right kind of farming to match the trend in environment and rainfall or water availability. So things should become much better is what I feel.

–  –  –

Umesh Revankar: See emission norms are great its keep upgrading now there EURO 04 and we are moving towards EURO 05 and ultimately to EURO 06 so, these will keep shifting upwards and the manufacturers will definitely have to comply with emission norm as per the requirement. So there will be constant upgradation of vehicle. And in Delhi they wanted to put a ban on ten years old Diesel Vehicle which is right now in the Court it is being challenged. So it is not fully implemented.

Devam Modi: Okay. And I mean just an accounting question what was the Automall income this quarter sir?

Umesh Revankar: We have not done the audit so these numbers are not available.

Moderator: Thank you. Next question is from the line of Umang Shah from Emkay Global. Please go ahead.

–  –  –

Umesh Revankar: No, it is 2,200 crores to 2,240 crores. Sunder any explanation on this?

S. Sunder: We have got to see that net interest income including our securitization income if we combine both then there is an increase.

Umang Shah: Okay, all right. And sir second thing was that in our AUM mix basically we have some significant shifts in two of these segments so our Heavy Commercial Vehicle which was closer to 44 crores last quarter is almost 49% now and Medium and Lights was like 26% last quarter it is 22% now. So just wanted to recheck that is there some kind of reclassification that has happened between segments?

Umesh Revankar: No. The demand for the LCVs have come down and some run down of the loan book is also there. The demand for Heavy Vehicle is much higher and ticket size being larger in Heavy it immediately expands so, when it expands ratio of other segments will become smaller.

–  –  –

Umesh Revankar: See as we lend more Heavy Vehicles and New Vehicle there will be some passing on of benefit to the customer because at a bigger ticket size we need to lend at lower rate. So to that extent it gets passed on and what we should benefit by in medium term should be around 20 basis points - 25 basis points Parag or more? Around 20 basis points - 25 basis points should be a fair estimation of medium term advantage on cost of funds.

–  –  –

Umesh Revankar: No, see out of that 125 some of the benefit has already accrued – we are discussing the further benefit.

Moderator: Thank you. Next question is from the line of Sunil Kumar from Birla Sun Life Insurance. Please go ahead.

Sunil Kumar: Sir my question is on the asset quality so considering the trends right now you are seeing in terms of freight rate let us say utilization discounts Heavy Vehicle sales. Do you expect any improvement in the asset quality in the second-half in the parent’s business?

Umesh Revankar: See second-half we are looking at very optimistically because one is we expect the rural stress to come down because of better winter crop. Given the storage level are lower than what it was last year. By changing the crop pattern I feel the farmer should be able to manage and rural economy to some extent should improve and more significant improvement what we are expecting is the infrastructure spending by the government and the projects to kick start. And the infrastructure project kick-starting will bring in a lot of employment to the unskilled labor the rural labor where the wages have not grown over the last year and who are desperately looking for more avenues for employment; the infrastructure activity will give them big relief and I feel that should be the biggest advantage in the next half and that should help us in overall improvement in the consumption level and IIP numbers and the transportation activity thereby improvement in the NPL position.

Sunil Kumar: Okay. So regarding infrastructure projects any particular trend which is visible to you right now?

Umesh Revankar: Immediately we do not see anything but a lot of host of projects have been announced in the last two years and we also understand from reliable sources that the government is approaching this with strong intent in pushing things through as early as possible and this makes us feel that in couple of month it will kick-start.

Sunil Kumar: Sure. And similarly, our subsidiary what sort of trend do you see for the asset quality the Construction Equipment Finance?

Umesh Revankar: There is not much change from the last quarter and we expect things to improve only when the infrastructure activity kick-starts in a big way. Once the infrastructure activity kick-starts in a big way it will positively impact the assets to which we have lent. Machine utilization levels should go up and the collections which were outstanding with various department and the companies should flow in and also the higher utilization of machinery and equipment will enable customers to pay us on time and that should help our asset quality to improve over time.

–  –  –

Sunil Kumar: Sir, if those players are in road sector then road sector has already picked up some of the orders which have been awarded. So are not they in the road sector? I mean have not they already seen some improvement there?



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