Good monsoon, infra works in rural areas will help in achieving 20% growth target: Ramesh Iyer, M&M Finance

Ramesh Iyer, Vice Chairman and MD, Mahindra & Mahindra Finance, in an exclusive interview with Swati Khandelwal, Zee Business, said, "Mahindra and Mahindra Financial Services is eyeing a 20-25 per cent annual growth in disbursements after posting strong numbers for Q1 FY19. Edited excerpts:

Q: The growth story of Mahindra & Mahindra Finance and its trajectory has been a positive one from quarter to quarter and year on year. Based on the results of the last quarter, which was quite strong, do you think that the company will be able to meet the projected growth from the rural areas? Or it will be a better one?
A: Good monsoon and ongoing infrastructure works in the rural areas, which has helped in boosting the sentiments and has increased the cash flow in both segments, will definitely help us to grow and meet the targets. We have seen the same earlier too and this is something that has supported us in presenting positive results in every quarter. And after seeing the way in which the monsoon has panned across the country, which was above an average, and the ongoing works on infrastructure in different states gives a sense that we will be posting a positive growth story this year to. For this purpose, we have started working with several OEMs and will be opening new 100 branches across the country. In addition, we have our customers in more than 3 lakh and 40 thousand villages across India, at present, and the exiting situations in these villages hint that we will be able to script a growth story. 

Q: What is going to be the range of growth rate in the ongoing year and also let us know about things that may play a villains role and pull it down? 
A: See, initially, we projected a growth range of 15-18 per cent and we have reported a growth rate that is more than 20 per cent in the first quarter itself and the second half always remains good in the rural areas. In addition, new launches in vehicle segment, penetration of OEMs in the rural areas, lack of competition, discounts due to rise in inventory levels and good monsoon cues suggest that we will get great leads and will help us in posting a growth story of 20-25 per cent. The first quarter result is also backing our hope. 

Q: This means that you are going to revise the outlook on the higher side from 15-18 per cent to 20-25 per cent. 
A: We had a disbursement growth of 20-25 per cent in the first quarter itself and second quarter always remains good in the rural areas, as it turns up to be the festive, harvest and wedding season and comes with a hope of an increase in vehicle sales. Secondly, our growth rate is based on the growth story of OEMs and almost every OEM hopes that this quarter is going to be a good one for them, which means we will also grow as a finance company. 

Q: You were talking about the monsoon. But, IMD in recent past forecast said that it remained 7 per cent below the average. Do you think that this deficiency of 7 per cent may have an impact on rural sales?
A: In this context, you will have to look on the timeline of monsoon, the way it panned across the country and the place that is contributing to this 7 per cent. There are certain states like Uttar Pradesh, Bihar, Madhya Pradesh, Maharashtra and Rajasthan among others, where the monsoon has remained above the average and will lead to a good yield. Maybe the overall monsoon has remained 7 per cent below the average but it remained good in big states on basis of which the yield is measured. And this is something that suggests that the deficiency of 7 per cent will not have any impact on the results. 

Q: Rupee's value if depreciating at present and had also reached the mark of around 72. How is it going to have an impact on your business and do you think that this depreciation may bring some problems to it?
A: See, we don't have any international borrowings and that's why it is not going to have any big impact on our business but this weakening will definitely create a pressure on the environment. At the same time, we will also have to wait and watch the reaction of banks on this depreciation but we are mainly dependant on local borrowings and thus this rise is not going to have any serious impact on a business like us. But 71 is a matter of concern for the industry. 

Q: Even the prices of fuel, diesel and petrol, has gone up and it may have an impact on your business as your customers are involved in buying tractors and farm equipment, where these fuels are used. Do you think that it will have an impact on your business, if yes then is it going to have a short-term impact or will have an impact on actual business?
A: To date, we have noticed that an increase in operating cost has never had any impact on the sales. As the operators who buy a vehicle including a commercial vehicle, they manage the input cost by increasing the fare rent or passenger fare but it depends on the time by which they increase the fares. This decision usually has an impact on their margins and this pressure on their margins may bring a pressure on their collections. Seeing on the way the prices of petrol and diesel are going up and there are chances of an increase in the interest rates, we should be prepared to see the heat of an increase in fair trade and passenger fares. Operators will have to face the pressure on margins till these fares are not hiked but it will not have any impact on sales. 

Q: In terms of organic growth you have informed that you have increased your distribution network. Can you let us know your plans for the next year and also about the growth drivers for the same?
A: Initially, we have a look at our capital position and the kind of growth that will be led by it 
At the first stage, we have a look at the capital position available with us and identify the kind of growth that it can provide to us. Earlier in November, we had a look on the capital that will be required for growth in next two years and raised the same in accordance to it. Secondly, when we are reducing our NPAs and are able to generate a profit of our own, which goes directly to the network and provides an ability to grow further. We are comfortable in our capital position. When it comes to our debt position than we use almost every instrument available like finance from banks, institutions, insurance companies, mutual funds, retail fixed deposits and assets among others and they together provide us with a liquidity position for a comfortable growth. 

Q: Can you let us know about the area of your concentration?
A: If you would have asked me the question 10 years back from today than my reply would have been that we are strong in North and are present in West and South but today we have a strong presence in every state of India. We have 18 branches in Jammu & Kashmir. We are also present in Arunachal Pradesh, Meghalaya and Guwahati. But when it comes to business volume than it is dependant on the size of the zone, for example, we have maximum business in North and this is supported by the population size of the zone. North is followed by West, South and East. In addition, we will be opening 100 more branches in the next one to two quarters as it will help us to cover 1 lakh more villages in India. 

Q: My next question is related to your subsidiaries as you have seen a growth in almost every direction and have said that these subsidiaries will be listed. Do you think that these businesses are ready for being listed on a standalone basis or will need more time for it?
A: I feel, more time is needed for it. For instance, our housing business has seen 10 years of its existence but for the initial three-four years, we were analysing the ways to increase the housing finance segment in the rural areas and then increased it at a slow pace. But on looking on the product you will come to know that it has been offering loans of up to 1-1.50 lakhs for house improvement or room addition projects. This form of business has helped us to increase our balance sheet around 6,000-7,000 crore. But, the affordable housing programme has brought a great opportunity for us and will help us in increasing our balance sheet by 20-25 per cent in the next one-two years. We wish to take its balance sheet to Rs 20,000 crore by 2020. Possibilities are there that the housing business can grow three times in the next three years and that is the reason that we have been investing in it. I feel, it will a pre-mature decision to list it at present but will think about listing it when it reaches an adequate size for the purpose but Mahindra Finance will be providing capital support to it.

Q: But Mahindra Rural Housing Finance Ltd (MRHFL) has received a funding from International Finance Corporation (IFC)?
A: It is a long-term debt, not an equity and it will help us in saving the project from ALM mismatch at the time when we think of entering into the low-cost housing projects. 

Q: It is a story of the housing project but what about other subsidiaries?
A: Our insurance business is a strategic move and it was instituted for distribution purposes. It is similar to LeapFrog Investments that had equities in our firm, which had been taken over by Excel Catalin and that's why we will have to give an exit route to it and IPO could be the one route for the purpose. It is a unique business because it is present in a physical format and work in the rural area and also invest in the digital platforms. This is a reason that we feel that it is going to be a unique model where you will have a break and click approach. Something new in the segment is the renewal of the insurance and will try to engage our broking company in it when our existing customers approach us to renew their insurance. This is a reason that we want to wait and watch it for next one or two years and give it a chance to mature and get a size and test all technology in the market before listing it. After all, till when Mahindra Finance will be investing in it as it will have to look at its own growth story. 

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Q: Can you let us know about the ways through which you are meeting the capital requirements for these businesses? Do you have any fundraising plan in the near future as earlier you used NCDs to raise funds?
A: As I have said that we raised the capital for Mahindra Finance in November itself and have a capital adequacy of around 18-19 per cent at present. We will not have any shortage for the next two years. In fact, at the same time, we also raised a certain per cent of capital to invest in other businesses. When it comes to Rural Housing than Mahindra Finance holds around 87-88 per cent in it and around 11 per cent lies in the hands of National Housing Bank (NHB). But NHB's participation went down from 12.5 per cent to around 11 per cent as it didn't have its participation in the rights issue that we released earlier. In addition, Mahindra Finance will be investing it these companies whenever they will require capital for their growth. Our insurance borking product will not need capital anymore as it is a cash plus company in our portfolio and they will be raising funds if they will have any expansion plan associated with them. At present, Mahindra Finance has 85 per cent holdings of the product and will like to participate more in it.