Mahindra and Mahindra Financial Services Ltd. (MMFSL) is a major player in vehicle and tractor financing business for the last two decades focused on rural and semi-urban geographies. The group caters to the customer in the ‘earn and pay’ segment one who deploys the vehicles to earn a livelihood by transporting goods or people. Today, the company has more than four million customers in three lakh villages, serviced though strong network of 1200 plus branches along with a team of 15,000 own employees.
Around five years back in 2011, as a natural growth initiative, MMFSL ventured into the M&HCV business, with a full-fledged nation-wide business vertical with a competent and experienced team from the CV financing industry. Fortunately for MMFSL, their parent company, M&M Ltd., also has stakes in the manufacturing and sales of M&HCV which makes them one of their preferred financiers and a good starting point for MMFSL.
Mr. Rajnish Agarwal, Senior Vice President – Operations, and Mr. R. Balaji, VP, Marketing & Strategy, MMFSL, share their view points on commercial vehicle financing.
Excerpts:
Company overview and services offered
Rajnish Agarwal (RA): The CV business is a specialty business and one needs to stay in the business for a long haul for sustaining. There are around 20 financers, including banks and NBFCs in this CV financing industry and we have been one of the later entrants. Also, we entered the industry when the downturn was around the corner. We started and then went slow as then it was not a significant part of our balance sheet. Since then we have slowly and cautiously grown the book and currently it is around 8-10 per cent of our total book. M&HCV is a very large industry and there is room for many players who are serious, experienced and plan to have a long-term player in this segment. This business does go for cycles and requires patience, understanding of the market forces and strong relationship with the transporter to sustain and be profitable. The competition is fierce at the strategic and fleet operations level. However, there are better margins available with 1-10 vehicles operators. We are participating mainly in the retail segment and are strategically focused on these transporters with a selective and small penetration in the strategic profile as well.
Impact of demonetization
RA: Cash was a tool for trade for CV operators in the past. Post demonetization operators have also maximized cheque transactions and the situation is getting back to normalcy. The CV industry did go through a temporary slowdown due to non-availability of cash in November and December but is no more an area of concern as cash is back into the economy and is not influencing the operations. Largely, CV segment has been undergoing a difficult time for the last two years, more so because macroeconomics factors where load factor and freight rates play an important role. The positive trend to look out for in CV business is to hope the load factor goes up, freight rates must show improvement and discounts on new vehicles have to vanish. This trend will then lead to better utilization of the existing vehicles and push demand for new vehicles. The month of March onwards should see demand rising due to change in the Euro (Bharat Stage IV) norms.
With many State Governments announcing their individual infrastructure projects and the Central Government allocation of large funds for mining and infrastructure development, we forecast a CV industry turnaround in 2-3 quarters from now.
Lending rate, disbursement details, incentives and special schemes
RA: The rate is in line with the market offerings which are currently range bound between 11-13 per cent. We disburse close to 3500 crores per annum. The schemes we offer are dynamic for quantum of funding as well as rates based on the customer’s profile and our seasoning relationship with customers. Our rates are based on the credit risk profile of the customer. Our CV re-finance rates are 150 to 200 basis points higher than the new vehicle financing rates. LTV (Loan-to-Value) and tenure is based on product, application and cash flows generated from deploying the asset and customers’ ability to repay from other sources of income. A detailed credit appraisal of the transporter is done before lending decisions are made. Reputation and track record do play an important role in the assessment.
Key USPs
RA: M&HCV is a very large industry and there is room for many players who are serious, and experienced and believe in long-term play in this segment. We have been in the market for last 22 years and understand the specific needs of the segment. Partnering with the customer for both good and bad times is our strength. Local engagement with the fraternity adds value. Our customized product offering, transparent and customer-friendly approach attracts customers to get associated with Mahindra Finance. We are opening branches at transport hubs across the country.
Target customer profile
RA: The most important aspect that we look for is the involvement of the owner and his knowledge and experience about the industry that he is operating. It is not about how many years he has been in the business but more about how prepared he is to handle the cyclical nature of the said business.
Balaji (RB): We look at the potential drivers from transport hubs and check if somebody is willing to progress. Sometimes the leads are provided by the dealers that we are in touch with. The network with dealers helps us as well as transporters whose vehicle demand are mostly for replacement. If we give them the right deal they will stick with us, and hence we try and reach the right customer and disburse the amount to one who can not only repay but enhance his income.
What are the criteria for you to finance a FTU (First Time User) seeking loan?
RA: We look whether the buyer has requisite understanding on why is he buying the vehicle. Has he factored the deployment / alternative sources of income in the business and what is the margin money that he is willing to put into buying the vehicle.
Association with CV dealerships
RA: We work with all the major dealerships in the country, but in the CV industry lending to the transport fraternity has always been on basis of their fleet, work in hand, track record, profile, years in business and a very close working connect with the transporters through which assessment is done. Yes, for LCV and SCV products dealers have some role to play for establishing credibility of the customers through their sales team.
RB: Every financing institution more or less has a tie-up with somebody, but that doesn’t guarantee business. Dealers will tell us that someone wants to buy vehicle. Since a majority of the demand comes from replacement vehicle, a customer would want to buy or continue loan from his previous lend. It is up to us how we are able to convert the client.