Mahindra Finance CFO, CFO News, ETCFO
Mahindra Finance’s net profit in Q4FY22 increased to Rs 601 crore from Rs 150 crore in Q4 FY21. The NBFC holds cash reserves of about Rs 8,000 crore, which covers funds requirements for about three months, the company said in a statement.
In the meantime, RBI has issued a directive that NBFCs can offer credit cards if they receive regulatory approval and have a registration certificate. Asking Karve about the subject, he replied that Mahindra Finance will explore this possibility. But that’s too nascent a thought before a concrete plan is in place. And while other NBFCs are also considering the same, if the company goes ahead with the plan, it will be the first NBFC to do so.
ETCFO, in the following edited excerpts, explores the company’s growth plan and the impact of inflation on demand.
Q: The company’s goal for the next three years is to double the balance sheet. What is the growth plan for this?
Vivek Karve: Doubling the balance sheet over the next three years is an aggressive and ambitious plan. This means that we must at least be in high growth in the teens in each of the three years. This is also the intention of the management of Mahindra Finance.
How are you going to do this? For our businesses, today more than 95% of the business comes from car financing, we also have three to four new pivots, in the form of the business of digital finance, the business of car leasing and credit to SMEs.
The heart of auto finance will continue to grow if we are to achieve this dream or aspiration. Although we have been silent on commercial vehicles (CVs), we now have renewed plans in the CV sector, both for heavy-duty vehicles and for small and medium commercial vehicles.
We won’t be playing with large fleet operators, but for small fleet owners we have reset our growth plans.
In the field of used vehicles, the economy has opened up and the issue of semiconductors is fading. Now the availability of used cars will also increase and this presents us with an opportunity to increase our market share. In fact, after HDFC Bank, we are already the number two players in the used car space.
Even in the automotive segment, our intention will be to further consolidate our market share in Mahindra vehicles, both for tractors and utility vehicles. And in the non-Mahindra car segment, we would definitely focus on OEMs such as Maruti, Hyundai and Tata Motors.
Our growth plan is a broad growth plan. Especially in the car segment, we will also focus much more on rural and semi-urban affluents.
On other pivots, in the digital finance segment, we are focusing on personal lending as well as consumer sustainable lending – customers whose due diligence will be done digitally, at the same time acquiring will be digital and to a large extent the overlay will be digital. Of course, it cannot be entirely digital, so it will be phygital. It will therefore also be helped by the feet in the street.
The second pillar is credit to SMEs. We will focus on the agricultural engineering and automotive sector. Currently, the focus was on Mahindra suppliers. But we are slowly expanding beyond Mahindra and looking at a broader set of customers where we can tap into both the bill discounting space as well as the term lending space, equipment lending and unsecured loan. This is a great opportunity that we believe we can exploit. We have already started and we are seeing the fruits of having set up the organization for this purpose.
The third pivot for us will be vehicle rental. The focus is currently on the CTC car segment, which many large companies offer their employees. But we are also considering non-CTC rental space, both for businesses and retail. Thus, we believe that the affluent segment, with digital finance, leasing and SMEs, should represent around 15% of our total asset base by FY25, which is today 3-4%.
Q: Are inflationary pressures impacting demand? Is this a concern for you?
Vivek Karve: Inflation so far has not reached an alarming level, given that lower inflation levels have persisted for a long time – in the 6-7% range. Therefore, any inflationary cycle would generally affect discretionary spending. However, for us, where the vehicle being financed is the main source of income for someone who buys the vehicle and then takes out a loan to us, we have to look at it a little differently.
One thing that is definitely going to happen, with the current rise in inflation, especially commodity-driven inflation, vehicle prices are expected to rise, which means automakers have already raised prices. This would result in the growth of the auto industry and hence the auto finance industry will grow as well.
In fact, the prognosis for the weakness in the underlying auto industry is double-digit growth for the current year. And on the back of that, the auto finance industry will also grow.
Although RBI has increased the repo rate, it means that the cost of borrowing will increase for NBFCs. And we will need to pass this cost on to our borrowers wisely. To that extent, there could be an impact. But as long as economic growth continues in terms of infrastructure spending, as well as construction activity continues unabated, the demand scenario for the automotive industry should remain healthy.
Also, to this extent even if the cost of acquisition and also the cost of financing for the borrower may increase, the economic outlook remains good. We believe that at least in the short to medium term, the growth trend in the auto finance industry, which we have seen over the past six to nine months, is likely to continue.
Q: Is the rate hike on the charts for FY23? How and on what basis do you plan it?
Vivek Karve: From now on, no rate increase will be observed. Even though this discussion is currently ongoing and it is a discussion as usual. This decision will also depend on multiple factors such as the protection of the net interest margin, the competitive scenario and our desire to take market share.
Also, if we are able to increase the slice of the pie from our refinance business, which is the used business, we will fund the business where the interest rates are much higher as well as at a level weighted average, it creates a cushion for us against inflationary pressures.
If you compare rates to March, rates have gone up at least 100 basis points. Where we have benefited from this is a benign period in the past year and a half where we have been able to borrow at a competitive rate. And a large portion of these loans will continue for much of the current fiscal year on the books.
Q: As CFO, what are your focus areas for the 2023-2024 financial year?
Vivek Karve: Sustainable and profitable growth will be at the top of my agenda, which means that a closer and more detailed performance monitoring mechanism will be one of the priority areas.
Given that there are sweeping regulatory changes, another area of focus as CFO, and one for which I am responsible, would be to ensure that the company meets both the letter and the spirit of what the regulation wants to bring to the table.
The third will be cost management, as we have discussed inflation, this means we need to focus on cost as well. And therefore, cost management will be one of the main areas of focus for the finance team as a whole.
Our fourth focus area is talent management and team motivation. As the economy opens up, there will be more job opportunities for the right talent and therefore retaining and developing the best talent will be our goal.
And finally, effective communication with investors. Investor relations in any business act as a window between the outside world and the home within. Therefore, communicating and translating what we do to the outside world and the expectations of stakeholders and the business community internally would be a priority area. For us to talk.