Auto Loan: CV financiers' quarterly performance — one of the best in many years
Over the last few years, from FY17 to nine months FY23, CV sales have been pretty strong. Blended realization has also improved massively especially for medium and heavy commercial vehicles (MHCVs). This edition of FinStreet explains how one should read into these numbers,
Commercial vehicle (CV) financiers have reported robust quarter three FY23 business momentum. Disbursal growth, quarter-on-quarter (QoQ), for players has been between 8.1 percent and 20.1 percent.
Hence, assets under management (AUM) growth has also been robust (QoQ) between 4.8 percent and 13 percent for all the lenders.
What has helped CV sector?
Over the last few years, from FY17 to nine months FY23, CV sales have been pretty strong. Blended realisation has also improved massively especially for medium and heavy commercial vehicles (MHCVs). For example, Ashok Leyland has seen blended realization increase by more than 44 percent between FY17 and nine months FY23.
The blended realization is a function of price increase as well as tonnage increase.
AUM growth trend of players
Generally, the growth trend has been between 13 percent and 17 percent on a year-on-year (YoY) and 4.8 percent to 4.9 percent on QoQ for CV financiers in quarter three FY23.
However, outstanding growth was seen for Cholamandalam at 31.1 percent YoY and 13 percent QoQ.
The growth for Cholamandalam has largely come from the fact that their disbursal to AUM ratio is at 68 percent in quarter three of FY23 versus its peers between 27.8 percent and 30.2 percent.
Good growth means that net interest margins (NIMs) should have improved as non-banking financial companies (NBFCs) lend to high yielding customers on any product.
However, Cholamandalam’s NIM has remained flat, despite robust AUM growth.
In a rising interest rate scenario, Cholamandalam’s NIM has remained flat while it has declined for Mahindra and Mahindra Financial Services Ltd (MMFSL).
Cost of funds has impacted the NIM momentum for these two companies.
If one takes a look, while their interest income has increased QoQ both for Cholamandalam and MMFSL, their interest expense has grown massively or higher than that compared to peers on a sequential basis.
Borrowing mix remains widely distributed for Shriram Finance and Sundaram Finance. While Cholamandalam doesn’t have access to deposits and has the lowest securitization portion, as a percentage of borrowings, when compared to peers.
Another point to note is that, Cholamandalam has the lowest provision coverage on its GNPA ratio compared to peers.
Shriram Finance has stage 3 coverage ratio of 50.7 percent, MMFSL has stage 3 provision coverage ratio of 59 percent while Cholamandalam has stage 3 provision coverage ratio of 26.7 percent.
Going ahead, lenders like Shriram Finance, Sundaram Finance and MMFSL can raise funds via deposits at attractive rates from their customers.
So Cholamandalam’s restriction on borrowing profile, when compared to diversified profile of peers, can hurt its growth in the coming period or in the next 6 months or so; just in case, it fails to borrow at competitive rate from the market.
Strengthening of balance sheet may hurt return ratios for Cholamandalam; if they choose to do so.
Cholamandalam’s performance against peers, in a rising interest rate scenario, needs to be seen with respect to NIM as well as return ratios.
For more details, watch the accompanying video
(Edited by : C H Unnikrishnan)
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