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Good morning, ladies and gentlemen. Welcome to the Shriram Transport Finance Q4 and for the full year FY '22 Earnings Conference Call. [Operator Instructions]
Please note that this conference is being recorded. I now hand the conference over to Mr. Umesh Revankar, Vice Chairman and Managing Director. Thank you, and over to you, sir.
Yes. Thank you. Good morning, friends. Good evening to those who are joined from Western part of the world. A warm welcome to all of you who have joined this call. Hope all of you are healthy and safe. Today, we have our JMDs, Join Managing Directors, Mr. Sudarshan, Sridharan, Nilesh, Sunder, Parag along with me. We also have Mr. Sanjay, who is our IR Head.
Let me first start with a few economic indicators that impact our business directly or -- and indirectly. The first big positive is the budget of 2022 that focuses on our infrastructure. With intention to provide a blueprint to steer Indian economy for high economic growth and sustainable development and to end the pent-up engines of economic transformation, seamless multi-model connectivity and logistic efficiency and also to achieve $5 trillion GDP. The budget 2022 recognizes infrastructure as key cornerstone. The budget has focused on high-impact areas and given accelerating capital expenditure cycle by providing a sharp increase in CapEx outlay by 35.4% to INR 750,000 crores for '22, '23, which is likely to strongly augment infrastructure spend, and that it has a direct impact on the CV cycle and construction equipment demand. However, the elevated inflation trends remains a challenge for our growth ambitions. Wholesale inflation averaged nearly 13% in '21, '22, more than a double rate of retail inflation. This happens to be the highest annual number of -- in 3 decades.
The Consumer Price Index, inflation CPI jumped to 6.95% in March, mainly on account of costlier food items as against 6.07% in February. It is for third month that retail inflation remained above RBI's comfort zone. The government's hand have strengthened due to all-time high GST collection. The gross GST revenue collected in the month of March is INR 142,095 crores, all-time highs, reaching earlier record of INR 140,986 crores collected in the month of January '22. The revenue for the month of March are 15% higher than the GST revenue in the same month last year. The average monthly gross GST collection for FY '21, '22 -- for last quarter of FY '21, '22 has been INR 138,000 crore against average monthly of INR 110,000 crore, INR 115,000 crore and INR 130,000 crore in the first, second and third quarter. This reflects the economic recovery and a direction of the growth.
The geopolitical issues, the war in Europe has given opportunity for India on wheat export at highly remunerative returns, much higher than the MSP. And India being the only country at this part of time, this -- with the bumper wheat crop. India is positioned very comfortably in the exports. And the high [ edible ] price also is highly remunerative for the local farmers. So majority of the workforce being in the agri and the farm sector, this is quite positive for the large population. However, the continuous high crude price and their domino effect is a challenge and has a direct impact on WPI and CPI number, which I had indicated earlier. It also has an impact on the balance of payment.
I would like to highlight certain new amendments and circulars issued by RBI from January 1, 2022. I highlight 4 of them. One is Prudential norms on income recognition, asset classification and provisioning pertaining to advances and classifications regarding upgradation of loan account classified as NPA to standard asset-only on full repayment of areas of interest and principal. This is applicable as on [ 39 months ], but as we also had given some leeway after that, but we have already complied with everything, every part of it. Implementation of core financial services solution, which is applicable as on [ 39.24% ], we are already compliant.
Compliance function and roll off CCO, Chief Compliance Officer, there is a 1-year time since the merger of Shriram Transport and Shriram City Union is in the progress, we have enough bandwidth, and we should be able to either internally or externally identify the right person. And before '23, we should be able to appoint. The scale-based regulation for NBFC's capital requirement of -- for NBFC's, for upper layer, Tier 1 capital of at least [ 9% ] is [ accretive ] asset, we are already complied. So most of the initiative of RBI has been complied with.
Now coming to the auto industry. In spite of chip shortage that has impacted passenger production and sale for the entire year, the commercial vehicles have been doing very well. Their sales have increased by 18.75% to [ 249,815 ] units in Q4 2022 against 210,356 units in Q4 '21, and increased by 28.3% compared to 194,712 units sold in Q3 2022. For the full year, it reduced to 26% growth through 716,566 units compared to 568,559 units sold in 2021.
The heavy and medium commercial vehicle showed positive growth of 16.69% with 93,974 units sale in Q4 against 80,534 units sold in the same period previous year, a positive growth of 46.92% as compared to 63,964 units sold in Q3 '21, '22. And for full year, it registered a growth of 49.72% to 240,577 units compared to 160,688 units sold in 2021. The LCV numbers also show a growth of 20.04% to 155,832 units as compared to 129,822 units sold in Q4 2021, and a growth of 19.18% as compared to 130,748 units sold in Q3 '21 to '22. And for the full year, growth of 16.7% to 475,989 units compared to 407,871 units. Used vehicle demand has been pretty high, and on an average, the retail prices have gone up by 20%. On the LCV, the retail prices are as high as 30%, 35%. On heavy it is anywhere between 15%, 20%.
Now coming to the our fourth quarter and full year performance. The collections have been very good. For the Q1, Q2, Q3 and Q4, the collections have improved over the period from 91.04% in the first quarter, 99.03% in the second, 101.17% in the third and 104.28% in the fourth quarter. We clocked a disbursement growth of 13.42% of INR 16,982 crores against INR 14,973 crores in the same period previous year and increased by 9.64% as compared to INR 15,488 crores in Q3 '21, '22. The assets under management grew by 8.36% to INR 127,040 crores as compared to INR 117,242.83 crores in the previous year, an increase by 1.96% as compared to INR 124,601.77 crores in Q3 '21, '22. The net interest income increased by 22.16% to INR 2,627.82 crores as against INR 2,151.12 crores in the same period previous year and increased by 10.04% as compared to INR 2,387.97 crores in Q3 2021, '22. And for the full year, the net interest income increased by 14.07% to INR 9,316 crores as compared to INR 8,167 crores in 2021.
The net interest margin was 6.96% against 6.80% in the same period previous year and 6.65% of Q3 in -- of '21, '22. And for the full year, 6.62% as compared to 6.7% in the previous year. The profit after tax increased by 43.87% to INR 1,086.13 crores in Q4 '22 compared to INR 754.93 crores in Q4 of previous year, an increased by 59.58% as compared to INR 680.62 crores in Q3 '22. The EPS stood at INR 101.74 against INR 100.97 in the previous year.
The gross stage 3 declined by 133 basis points and net stage 3 declined by 61 basis points over Q3 '22, and hence, the gross stage 3 stood at 7.07% compared to 7.06% in the previous year and 8.40% in Q3 '22. The net stage 3 stood at 3.67% compared to 4.22% of previous year and 4.36% in Q3 '22. If you recollect, there was an 80 basis point increase in gross stage 3 and 47 basis point increase in net stage 3 due to revised process of NPA classification based on RBI circular November 12, 2021. And even though RBI has given time, we have decided to continue with the RBI -- as per RBI circular. The credit cost for the current quarter stood at 2.03%, and for the full year, it stands at 2.68% against 2.48% in the full year 2021.
Our liquidity position now stands at INR 17,709 crores against INR 17,319 crores in the previous quarter. The Board has suggested us to continue with higher liquidity due to geopolitical issues and also some concerns on rate of COVID cases in certain buckets.
The cost-to-income ratio was 20% in this quarter, and for the full year, it stood at 19.89% as released 21.20% recorded in the same period previous year, improving further on our principle of frugal management. We have added 20 new branches, mostly conversion of rural center into branches during this quarter, which now stands at 1,854 number. And in terms of employee strength, we continue to add more numbers, more employees through business associate matters so that we can onboard new employees by fresh training. The significant increase in economic activity post easing of lockdown by state government due to COVID-19 and resulted improvement in business operation of the company. As a matter of prudence, during the quarter, company has the return of loans outstanding amount to INR 799.92 crores by utilizing the ECA provision created as management overlay on account of COVID-19. Initial provision of INR 2,052 crores is retained by the company as on March 31, '22, towards further management of overlay on account of COVID.
The progress on merger. The company has received approval from BSE and NSE under Regulation 37 of SEBI LODR, conveying their in-principle approval to this scheme as per the direction of stock exchange. The company has posted all necessary documents and information pertaining to the scheme on the website of the company. The company has filed a company application seeking direction from the NCLT Chennai for convening meeting of shareholders, secured creditors and unsecured creditors. We are waiting for listing of our application and for hearing by NCLT. Necessary company petition will be filed with NCLT during resolutions -- after resolutions are passed in shareholders and creditors meeting for the approval of the scheme. The process of getting necessary regulatory approvals are underway. All matters/activities in connection with regulatory approval are progressing as per the schedule. The scheme is effective upon approval of honorable National Company Law Tribunal, Chennai after obtaining the necessary regulatory and statutory approval.
We have made a significant progress on [ module ] front. We have started integrating our systems and processes. The HR integration on back office and operations have already started. The JMDs who are [indiscernible] unit heads are all set to take their responsibilities. On the growth outlook, we have targeted a 15% growth for the combined entity. And on a standalone basis, on the commercial vehicle lending, it would be 12%.
Now I request our CFO, Parag Sharma, to take the call and subsequently, Sunder, also will join with some accounting numbers. Thank you.
Hello, everyone. On liabilities, total liabilities as of March 22 is INR 114,497 crores. The composition has slightly changed compared to last year. We have been able to increase our deposit portfolio from INR 16,000 crores to INR 21,000 crores now, which has increased from 14.76% to 19.14% now. Share of bank loans has also gone up from 16% to close to 20% -- 19.6% now. What is heartening is, the cost has come down. On the entire liability, the cost is now at around 8.14%, down by around 83 basis points compared to last year. And quarter-on-quarter also, costs have come down by around 31 basis points.
Composition, we have been indicating a little bit 20% of liabilities from each stores. We are close to 20% from each store other than the debt capital market, which is at around 23%. The foreign borrowing, which is ECB loans and bonds, is also close to around 20%, and that was the case last year around also. The fund mobilization for the quarter has been good, and the incremental cost of fund is down by around 20 basis points. The total funds mobilized in Q4 was close to around [ INR 14,000 ] crore, including an ECB, which we did in a January to the extent of INR 3,500 crores.
We had mentioned about our liquidity at INR 17,000 crore, which is good enough to repay all liabilities for next 6 months. We have guided that we will bring down the liquidity over a period of time. We will look at Q1 onwards to bring it down slowly. We have a dollar bond maturity in October, which is a substantial amount. We'll build up buffers for that and not dilute our liquidity buffer substantially. It will come down by sort of 6 months. It may come down to 5 months and then 4 months, but we'll maintain slightly higher liquidity. On the ALM front, all buckets have been positive as in the past and the cumulative surplus up to 1 year will be INR 20,000 crore and up to 3 years, will be around INR 26,000 crore. High-quality liquid assets is 148.7% against the regulatory requirement of 60% that we have been maintaining from -- for last -- right from the time the requirement of HQLA came in. It has been always more than 100%.
With this, I hand it over to Sunder for his comments.
On the onetime restructuring, the company had implemented resolution plans, both for Tier 1 and Tier 2 to release the COVID-related 39,410 borrowers amounting to INR 1,152 crores, out of which the current outstanding is INR 852 crores, and 1.67% of the cases are in greater than 90-days dpd bucket. The PD for -- on the ECL front, the PD for the stage 1 is 7.34% as against 7.33% in the December quarter. And for stage 2, it was 21.72% as against 21.75% in the previous quarter. The LGD was 44.68% as against 45% in December quarter. Then we are carrying an excess position over the [ IRAC ] requirement by INR 6,499 crores and the capital adequacy was strong at 22.97%, out of which Tier 1 was 20.70%.
And no other update from my side. Thanks.
We can open to question-and-answer now.
[Operator Instructions] The first question is from the line of Rikin Shah from Credit Suisse.
I have 4 questions. The first one is on disbursements. Of course, they have been very strong in the last few quarters, but we note that the share of new vehicles in the overall loan mix has now almost 0.5% to 5% from 10%, 2 years ago. So I just wanted to get your insights into as to when do you see the demand for new vehicles recovering? And if at all, the replacement demand could show up in FY '23? And the second question is on the margins. Given that your new paper issuances are still happening around at 7.5% for 3-year tenure, do you still expect the incremental funding cost or overall funding cost to kind of move down? Thirdly, the tax rate seems to have been low, around 20% in this quarter. Any specific reason for that? And lastly, fourth, what is the total outstanding amount of ECLGS disbursement that we have made so far? That's it from my end.
Yes. To start with, on the new vehicle, see we had virtually a slowdown on a lending new vehicle for last 3 years. As when the economic indicators indicated that the market is going to slow down, we had tightened our amounts on the new vehicle because in the weakening economic condition, the repayment on the new vehicle, which is high ticket size, becomes challenging. And because we had a slowdown for the last 3 years, the overall AUM of new vehicle has come down.
But if you look at last quarter's disbursement, we have disbursed more than INR 800 crores for new vehicle, which is much higher compared to the previous year of around INR 600 crores in the same quarter. So now onwards, I feel the new vehicle lending will go up or be part of our lending. The demand for new vehicle also picking up. And typically, small operators, they buy new vehicles only when the economic indicators are very good and the used vehicle price go much beyond their comfort. So that's how the smaller operators get into new vehicle. Otherwise, typically, large fleet operators buy new vehicle and keep recycling. So new vehicle lending will definitely increase year-on-year.
And on the...
The taxation front, we had a reversal of around INR 82 crore on account of yearly ECL provision, which was no longer required, and that gave a benefit for a lower tax in the current quarter. As far as the ECLGS loans are concerned, okay, we don't have the figure right now. You can contact with IR, Sanjay. He will help you out with the figures.
On the reserve.
On the cost of funds, yes, what you are saying is right. The debt capital market instruments costs can come down, but that component of what incremental funds we are raising is not very significant. We raised only INR 2,000 crore in Q4 versus, what is overall borrowing of INR 15,000 crore. Large mobilization through bank loans, securitization and retail deposit. So that doesn't have a significant cost implication. Even if it comes down, we will be looking at whether we can bring down cost from other sources also. We may not have a very significant impact, but yes, there will be some cost reduction which can happen.
The next question is from the line of Shalini Vasanta from DSP Mutual Fund.
This is Vivek on for Shalini. Congratulations on a good performance. My first question is to Umesh, and that's on the new CV sales. From what we understood, the economic indicators are weak and therefore, this new CV -- truck operators could not meet their EMI commitments and so on. And so there was a lot of lull. So what do you feel is changing on the ground that gives you hope that the operating efficiency will be high going forward? And how is the current operating efficiency and ability to pass on fuel price hikes? So that's the question for Umesh.
Other question is for Parag. Congratulations on this -- a good shift to FD. How do you price your FDs? Is it off of a benchmark in terms of SBI rate or something like that? Or do you do it as a demand supply where you kind of attract customers with higher rates and then work on stickiness?
Yes. See, as far as the new vehicle is concerned, we have witnessed some demand coming back on the new vehicle, mainly because -- what happens is, the vehicle sales are in a cycle. If you go back to the last 20 years, you would have seen that these new vehicle sales come down to a level, and as the economy improves or as the availability of the commercial vehicle reduces in the market, then automatically, the price rate goes up. See, this happens -- this happened in 2012, where -- 2010 to '12, when the new vehicle sales went up significantly in the -- these 2 years -- 2, 3 years. Then again, from '15 to '17, again, it went up. So it comes in a cycle. So now I feel the cycle, we have started and the new vehicle sales has to go up. Because the last 4 years, the number of vehicles sold has come down.
And since the Indian economies keep growing, you need a certain number of vehicle every time when there is growth. So in that, my estimation is, the new cycle has already started, but because of the other economic issues or reasons, it has not picked up. And as a rightly product, the fuel cost or the fuel price that has an impact on the new vehicles buying because unless people are confident of passing it on to the consumer, nobody will buy a new vehicle. So right now, I believe the ability to pass on is there. And whatever the increase you have seen in the last 2 months, almost everything is passed down to the end consumer or the shipper is bearing it. None of them have put pressure on the transport operator as of now.
So I feel that in the recovery stage, normally, it gets passed on to the end consumers, and therefore, the inflation goes up. If the food price is up today, it's mainly because transportation cost is high, not actually because that food cost at the farm or at the production is high. So it is absorbed by the end consumer. So I feel the new vehicle cycle has already started, and because of some reason, like geopolitical issues and crude price, it is getting a little delayed. But in next 3 years, the new vehicle sales should only go up from here.
The next question, Parag.
So the pricing, what you are saying is right. It will be a benchmark to -- not strictly to the bank rates because bank rates have gone up, and we have actually reduced our FD rates last year and not subsequently increased. It will also factor in this peer group pricing and then we will [ take a call ]. As of now, what we have done differently is, activate the branch network for deposit mobilization. I think more could do with our connect with the customers, and then we are able to increase our portfolio. So I think over last one year, the cost has come down. The portfolio cost has come down from -- by around 50 basis points, and we do expect some cost reduction further in deposits also.
The next question is from the line of Abhiram Iyer from Deutsche CIB Center Private Limited.
Congratulations for a good set of results. I just wanted to sort of ask regarding the cash flow for this quarter. From what I can see, the cash has gone down by around INR 18 billion. Debt has increased by around INR 18 billion, and that seems to sort of cover up the increase in AUM and the increase in investments. So I just wanted to know regarding the operating income that the company has received. Is there any non-cash component here that we are missing?
Maybe -- okay. We'll take this question offline because it sort of involves certain decision. So you can contact with Sanjay, he will help you out in resolving this.
Got it, sir. And the second thing that I wanted to ask was, the sort of securitization -- securitized assets, that's basically the company has been doing pertaining to the AUM, has gone down by around 18% year-on-year. Is this because there is less appetite among the banks for securitization right now? Or is this a direct company policy to sort of increase their own balance sheet assets?
Securitization also according to the new accounting standards continues. Securitized assets also continue to be on balance sheet from AUM. On balance sheet, the assets do count. Appetite-wise, I don't think there is any doubt of lenders' interest in this instrument. We have been conscious of the fact that it should not be a substantial source of funding to us. It could be at around 20% and not beyond that. Though we do get cost benefit here because of [ private ] sectors back to the portfolio. There has been also RBI on lending for [ private ] sector benefits, which is available to banks. And banks have resorted to on lending on balance sheet rather than doing securitization. I don't think there is a demand which is an issue. It has more to do with our policy of not breaching a particular level of reliance on one particular source.
The next question is from the line of Shubhranshu Mishra from Systematix.
Sir, a couple of questions on the disbursement and used vehicles. So if you can please put up the number for the number of loans that we have disbursed in this quarter. What I'm trying to get at is, what's the total population of commercial vehicles? And how much we do on a monthly run rate basis or a quarterly run rate basis in terms of number of loans that we dispersed? That is first. Second is on the used vehicle. We have been speaking about the prices going up. Any specific use cases in used vehicles where the prices have been going up or any variation where the prices have gone up by a bigger number than 20%? So if you can speak, again, more color on the used vehicle demand across use cases.
See, used vehicle prices, if you look at the -- some of the vehicles where the recent prices have gone up significantly are in the SCVs, the small commercial vehicle. The small commercial vehicle -- even the new vehicle prices have gone up by 35% over the last 2 years. One is because of the change in the BS-VI mounts, and second is because of the steel price. So the vehicles like those are the Ace, that kind of a vehicle, the prices have gone up steeply. And the used vehicle price also gone up steeply to around 30% there. And even in the ICV vehicles, which is around 9 ton -- 8-ton to 9-ton vehicles. Whereas Eicher or Tata or the Leyland and even BharatBenz.
There also prices have gone up by 25% to 30% in new and also in the used. So these are the vehicles where the recent prices are high. The total population of vehicles in India is around 1 crore 10 lakh (sic) [ 11,000,000 ]. You can get from the CM state-wise detail on the registered -- the number of registered vehicles across the country, and that will give you the indication on total used vehicle population in India in commercial vehicle.
But if you look at the passenger vehicle, passenger vehicle will be much, much larger. It will be at least 3 to 4x larger than the commercial vehicle. And within the passenger vehicle, at least 1/3 of the passenger vehicle will be used for transportation purpose. So that, again, number we need to capture. And in the tractor, total tractors that have been registered is around the 75 lakhs, 72 lakhs to 75 lakhs across the country. So that gives you the total population of the used vehicle in India.
Apart from that, we also have a construction equipment. Some are registered, some are not registered. The construction equipment, which are typically hiring wings, are registered, but construction equipment without wings are not registered. So you may not get data through the registration authority. So that is the total size of the used vehicle and number of vehicles financed by us, I will ask Sanjay to get back with you and give you the number.
The next question is from the line of Akshay Ashok from Prabhudas Lilladher.
Congratulations on a strong set of numbers. Sir, I just had a few questions. So what is your strategy regarding the business loans, working capital loans? And then what is your strategy regarding branch openings? Will there be a branch expansion now that the economy is doing well and the sales are doing well? And what is your strategy regarding core lending? Are you planning to enter into core lending agreement with any of your banks to increase your book at quite a fast pace? And even raising funds will become easier due to core lendings. That's it.
See, as far as our branch opening strategy is, normally, what happens is, we have over the last 10 years invested on opening of rural centers, which are low-cost branches where the rents are very low in the rural area. And over the 10 years, these rural centers have been converted into branches. We are not directly opening any branches now. So whatever the rural centers and areas where we cross at least 400 or 500 numbers of customers, then we open a branch because for servicing them, we need to have a full-fledged branch once we cross a particular number of base. That is the strategy we have. So we have another 775 rural center. So you can say that these -- all these are potential branches, but since the merger is already announced and we also would like to look at the Shriram City Union branches. And depending upon the Shriram City Union branches, location and potential growth and some scope for putting the businesses together, we have not opened too many new branches. Right now, whatever we have opened is the rural center conversion. So the -- all India, there are around 9,000 potential location as per our calculation for doing business, but we need not to open in all the places as we are also strengthening our digital play. So some of the business will come through digital mode. The other question is...
Co-origination.
Co-origination, see, we have been -- we have done a co-origination in the past. It is not that we have not done. But when the co-origination policy came from RBI -- before policy came, we had tied up with a few banks. But when the policy came, they did not allow the deposit taking NBFC for co-origination, which in the last year, they have now allowed even the deposit taking NBFC. So this interim period, we have not signed up with any bank, but we are talking to bank. And wherever there is a scope and opportunity where both -- it helps banks and us, we will -- we're open to -- for co-origination.
Particularly for new vehicles.
Mostly for new vehicles.
The next question is from the line of Abhijit Tibrewal from Motilal Oswal.
Congratulations on your good set of numbers. So 2 or 3 questions. Firstly, I mean if I look at the spread or rather the exit spread that we have reported in 4Q, I mean they are probably, I would say, the highest in the last decade. So I mean just wanted to understand, are there any one-offs in the interest income item potentially from write-backs of interest income, given that we've seen a very strong improvement in asset quality? So that's my first question. And what are the sustainable spreads in margins that you are looking for in the next financial year?
The second question is, sir, congratulations on a very strong improvement in asset quality. But I mean if I do that back of the envelop calculation, assuming that P&L credit costs are a combination of our provisions and write-offs, the write-off number looks slightly elevated. So I mean if you can share, what was the quantum of write-offs during the quarter? And were there any loans which were sold to ARCs during the quarter? And sir, lastly, I mean given that fuel prices are up about 10%, we're just kind of trying to understand what impact could it have on the collections and demand going ahead? So if you could just kind of share your thoughts on these 2 questions.
On the interest income, there has been some write-backs on account of the NPAs coming down from 8.4% to 7.07%. That is around about INR 6 crores. So if you exclude that from an income of -- incremental income of INR 244 crores, the difference is the actual growth income in the current quarter. As regards the write-offs, we wrote-off INR 1,470 crores, and we got a rate of [ INR 79 crores ] from the provision. The net write-off during the quarter was of INR 761 crores. So there was the impact on the P&L. And the last question, can you repeat, please?
Fuel prices and guidance on [ margins ].
Fuel price going up as long as we are able to pass on to the customer, the truckers are very comfortable. So I don't think at any point of time -- because when you transport any perishables, automatically, it gets passed on to the end consumer -- or day-to-day essentials. Only when the industrial goods transportation is there, then there is a long contract. And most of the contract obligation also has the fuel cost as one of the, what we call, parameters for fixing the high trades because most of the contracts today are including the fuel price level for a particular level of contractual obligation. So I think it has no impact on the transporters, per se. But the only thing is, the sale of new vehicle will come down whenever there is the liability issue for the transportation and the demand for the existing vehicle automatically go up, and people have to pay the price of the transportation. So I don't think existing operators will have any kind of a challenge as far as the operating it profitably.
Umesh, sir, if I may squeeze in just one last follow-up question. And I understand, I mean contractual organizations will be more pertinent for some of the larger fleet operators. But sir, the customer segment or the clientele that you have, which is the only driver kind of a segment, will they also be able to pass on the higher fuel cost to the customers? That's one. And sir, I mean, lastly, I think within the opening remarks, you had suggested that you're looking at 15% growth for the combined merged entity and 12% for the CV business. So I'm just kind of trying to understand, does these projections also include, I mean, some of the new product segments that you are kind of looking to enter in FY '23?
See, we are not planning to enter into any new product segment in this financial year as a combined entity or on a standalone basis. The increase of 12% is a factor in the increase in the unit price that is vehicle price and equipment prices. That has gone up by 25%, 30% to replacement. Whenever a person buys a new vehicle or used vehicle as a replacement of existing vehicle, he has to buy a product which is around 25% to 30% more costly. So our ticket rate ultimately will go up to that extent. So the 12% increase, maybe 50% is the cost -- the ticket size that going up that helps. And adding of new customers would be 5%, 6% only. So overall, 12% can be easily reached.
And as far as the individual small operator is concerned, normally what happens, the way transportation segment operates, the large fleet operators have around 20% of their vehicle of the total requirement. They have only 20%. 80% is the market vehicle that's being provided by the agent or broker or individuals that come in. Now this 80% of the people have an option of plying the vehicle on this particular rate offered by the transporter or not.
If they see it is not remunerative, they will not ply the vehicle because not ply the vehicle, they say on the operating cost at least. So automatically, what happens when the 80% of the vehicles are supplied, the transporters have to give where viable or the remunerative price to the truckers, even if the 5% of the truckers refuse to transport. Automatically, there is a pressure on the transporter to increase the price. So the individuals are having the option of not plying. That is the biggest strength for them, and automatically, they get to remediate to price. It is not that they are at a [ weak, weakened ] all the time.
The next question is from the line of Sanket Chheda from B&K Securities.
Sir, my question was on liquidity. We might have mentioned that we will continue with this liquidity level? Because earlier, we had guided that it will come down in Q3, Q4 with the growth coming in and projection also improving. So why have we not reduced the liquidity buffer? And maybe why are we saying that we will continue with this liquidity levels?
I think Parag has already answered it, but I would like to repeat it. See, for the 1 quarter, this quarter, the Board has suggested because of the geopolitical tension to have liquidity for at least 1 quarter now. Post that, there are some large maturity, which we would be paying, and automatically, the liquidity would be coming down from 6 months to maybe 5 months, and subsequently to 4 months. So that's what we anticipate. And we feel that being very conservative to transition to be smooth from 6 months, the maturity liquidity to around 3 months which has been the practice earlier.
And sir, on write-off policy. Now this quarter, we have utilized INR 800 crores and still -- the COVID still stands at about INR 2,000 crores. So do we expect any accelerated write-offs in the coming quarters also? Or now we are comfortable with there states the debt levels right now, the levels at which it is right now?
Yes, there could be a write-off and write-back both in this year because over the 1 year, would like to see how this portfolio, which has been impacted by the COVID, will behave. Because the portfolio that had impacted negatively in the COVID was mostly the passenger transportation. Passenger transportation was badly hit, and we have identified that and we have taken action in this quarter. But this full year will be available for us to look into this segment much more keenly, and we observe and then we will take action accordingly. So there is option for both write-off and write-back both.
And lastly, sir, on growth. Our disbursement in each seasonally strong Q3, Q4 has improved, but not that meaningfully as we have been witnessing earlier second half. So now heading into, say, first half of FY '22, which is usually seasonally weak first half, but since we are just coming out of crisis, do we expect a similar momentum after Q3, Q4 continuing in the next few quarters as well?
Truthfully -- normally, first half and second half is 40-60. That's how it plays out because the cycle -- the Indian economic cycle is like that. In second half, during the festive period, then you have the summer crop coming. Then you have the winter crop coming in the second half. That creates a lot of activity and a lot of demand and consumption goes up and demand -- there is more credit demand. In the first half, normally, you have some uncertainty due to the monsoon and due to heavy monsoon in certain location, activity comes down.
Even the government spend also comes down in the first half of the year. The government spend normally begins from [ other and ] picks up in the second half. These are all the reason the second half is always stronger than the first half. But whether this first half will be much stronger, I feel still the group price is going to be a -- creating some doubt in people's mind. So nobody will rush to buy a new vehicle at least for now when every alternative day the fuel price is going up. [ Sometimes people ] feel instability.
People don't buy a new vehicle. So we do not know whether the fuel price will stop at this level or it keeps increasing. And if it keeps increasing, whether the consumption level is the same, there is some uncertainty. So the new vehicle demand will be suppressed in the first -- at least if the fuel price keeps going up.
So I understand that. And in new vehicles, anyways, we were not being disbursing. And my question was largely subjective to us that in this second half, we have not been so strong on growth, 2.2% in last quarter and 2% in this quarter. So I was saying rather that this level of disbursement should continue in first and second quarter also? Or maybe it would be from here on since the first half will be there?
If you compare Q4 to Q1 this year, definitely, it will be lesser.
The next question is from the line of Piran Engineer from CLSA.
Sir, congrats on the quarter. Just a couple of pending questions. Firstly, out of the INR 1,500 crore write-off this quarter, how much was for NPL assets versus standard assets?
Out of INR 1,470 crores of write-off, the NPL assets were INR 1,216 crores.
Okay. Okay. And sir, secondly, out of our 21 lakh customers, how many ballpark would have been new to Shriram versus existing to Shriram, a ballpark mix? And has that mix also changed in the last 2, 3 years?
Typically, if you look at the customer, new to customers -- new to Shriram would be around 35% and 65% of them would be repeat customer who will be coming back after completing their existing loan. And our customers may even come back after 2 years after completing the loan, that also keeps happening. So we have a strong customer relationship. So the customer will come back at any point of time. So in the used vehicle market, Shriram is the most popular name. So anyone want to buy or finance a new vehicle, they always think of Shriram first. So that's how, we have a large customer base who keeps coming back. So around 30% of the customer will be new to the business and first-time buyer or first time to Shriram.
Okay. Has that ratio changed, sir, in the last 2, 3 years?
No, it won't -- rate is not to change significantly.
Okay. Okay. And sir, just another broad industry question. Out of -- there are 80 lakh, 85 lakh CVs in India, as per my guess. Typically, in a year, how many gets scrapped? Basically, how many get off the roads?
Our thumb rule, I can say, is more than 20 years old vehicle typically get scrapped, and it could be around 3% of the vehicle population that gets scrapped in a year. So that is what -- because even when I'm looking at the CM data, the CM data -- when you look at the vehicles that gets scrapped that -- details are not there in the RTOs. So I can only talk about thumb rule. I cannot come out proper statistics or data, but the CM can help, if at all they have data.
Okay. And that 80 lakh, 85 lakh number is ballpark, correct, right?
11,000,000 is the vehicle population which are running, which are actually paying tax.
The next question is from the line of Krishnendu Saha from Quantum AMC.
Yes. Just a couple of things to understand. So the LGD is going up from 39% to 40%, 45%, 44%. So yes, I know we provide on a [indiscernible] basis, but how do we see that paying ahead put some light on it? And our next question is on yields. Just to understand the yields and the spreads on the little bit better. You said the AUM will grow by 12%. The rural AUM is already growing by 12%. It is already 50% plus of the books for the last 4 quarters, which is a better yielding book. Working capital loan and others have not kicked in to -- that the higher levels report. So how do we see the yield of the asset going ahead? And with that, how does the liability profile look at? Because we have -- with the rising interest rates, how do we see the liability profile going ahead because [indiscernible].
As far as the yield is concerned, we focus on our net interest margin around 7%. And sometimes, if the borrowing cost comes down, we pass on some benefit to the customer also because if at all, we feel that a certain kind of customers need to be given a little commensurate.
Speaking on the net interest margin are exactly on yield. And you are right, in the rural segment, you get a higher yield. There is a better opportunity for us to lend at a higher rate. That -- but as rural expands, we do use that opportunity. But as I was telling you, the focus will be more on net interest margin. So some benefit even in the rural area will be passed on to the customers.
Right. So let me understand that if we spend 2.5% of the NIM, it could be maintained on a steady basis for the last -- next 1.5 years, 2 years.
You're right. You're right.
What would...
We are currently maintaining 44.65%. And the pre-COVID level was less than 33%. So we hope that maybe in the next couple of years, it will come back to the normalcy once the COVID is behind us. So one-offs are not going to be removed, then it should come back 35% level.
35%. And sorry, sir, and if I might ask you, what was the incremental cost of borrowing for us?
Incremental cost of borrowing is around 7.5%. Yes, 7.2% to 7.5%.
And I suppose 80% of our book is fixed, right?
Yes.
Yes, 80% of the borrowing is fixed.
The next question is from the line of Nischint Chawathe from Kotak Securities.
Two questions. One is on the liquidity front. Given the new RBI norms are sort of getting implemented in phases, how much scope do you really have to run down the [ excess ] liquidity on balance sheet?
Understand your HQLA requirement, see, there are certain categories of liquidity, which is we are maintaining, which is not counted for HQLA, be it bank deposit, be it CVL investment, which are not counted for HQLA. But I don't think that is going to have -- bringing down liquidity will have any impact on our HQLA and need to maintain high liquidity. We have sufficient scope, and any which ways, what we are maintaining also is sufficiently high, 148% versus requirements, which can -- will go up to 100%. But I don't think there is any linkage -- direct linkage there. So we can bring it down to -- if you look at the absolute number, we are at INR 17,000-odd crore can come down to around INR 10,000 crore or maybe slightly less than that. So that is -- that has been our policy even in the past to maintain 3 months of a liability repayment, but was also close to around to INR 8,500 crore to INR 9,000 crore range should be the liquidity, and that will still meet the HQLA requirement as per RBI.
You mean 3 months of gross repayments, right?
Yes. Yes, the INR 8.5 crore is gross repayment.
Okay. The other one was on growth guidance where you mentioned that you're looking at a 12% annual growth next year, which includes -- half of it is for price inflation and probably, half of it is new customer addition. So I mean are you kind of saying that if product inflation is not high, probably 24%, 25%, then your growth should be somewhere in 6%, 7%, 8%?
Product inflation is already in place because all the vehicle prices have gone up by 20%, 25%. I'm talking about a replacement. A customer who is replacing in next 1 year, he is going to replace a vehicle which is 25% costlier. So automatically, that gets factored in. So it is not a year-on-year increase. There's already -- the vehicle prices have already increased. So automatically, you get that 25% growth automatically when the customer buys a replacement vehicle.
Sure, but the thing is that it may not again go up 25% of the next year, right? I mean it cannot go up again 25% in FY '24. So...
Please understand, a customer would have purchased a vehicle 4 years back and now he's completed the loan, and he is buying another vehicle. So 4 years back, the price was low and he is replacing a vehicle, which is 30% more. I'm saying that the product price is already up. So whenever a person buys a vehicle, he has to buy a vehicle which is 30% or 20% higher. So in the next 1 year, whatever vehicle we finance will be expensive by 20%, 30%. So automatically, you get 5% to 6% increase.
And if you're paying should be like an annual phenomena of 20% price, right?
It could be for another one year only. It may not be permanent.
So what -- that's what my point is that what happens after that? After that, it will...
After that, we generally -- see, we need to create more reach. The scope is very high. We are less than 30% in used vehicle market. 70% of the market is open, and out of the 70%, 20% is by organized sector like other NBFCs and banks who are in used vehicles. But nearly 50% of the market is by anonymous players, and that is the market we keep hiring in every time.
Because you mentioned that your new customer acquisition is around 5% to 6% next year. So probably, what you're saying is that it can accelerate probably the year follow -- the following year.
Yes, this will accelerate. Because of the merger, we'll have more reach. We have a large number of -- a larger number of employees. And because the synergy benefit, we would be able to expand and growth rate can be much higher.
Sure. And finally, if you could give some update on the merger in terms of operationally, how things are playing out right now. How are your plans in terms of exporting the synergies working some developments versus when we spoke last?
Yes. See, there is a good progress. The pilot branches already started operating. So then the product introduction will happen in the next stage and that should happen in a month or 2 time. Then as far as the leadership is concerned, the leadership is already looking into geographical lines. We have made a 5 geographical business and the geographical head, the JMDs are already looking into their respective geography. And they will take care of the further product introduction and the growth of the business and the synergy. Everything will be looked at by them. So I feel it is in the right progress operationally. In the back office, HR integration is almost done. So we exactly know what we need to do in the HR. And as far as the technology integration is concerned, even though we need to keep this platform separately in the legal merger. For all other preparation is -- we are fully ready.
The next question is from the line of Oon Jin Chng from HPS Investment Partners.
Most of my questions have been answered. I just have a couple of follow-up questions. Just first, on replacement. You mentioned -- I just want to get a sense, what's the average vehicle in your portfolio right now? Do you have a sense as well what is the rate of replacement in this current portfolio? That's my first question.
So the replacement -- when I say replacement, the customers keep either adding more number of vehicle or they replace existing vehicle once the loan is completed. So we -- it all depends upon the economic activity. And also sometimes, it also depends upon the new vehicle sale because higher the new vehicle sale, the higher churning will be there in the used vehicle. And also this new vehicle will come into the used vehicle market. So the churning, I can find in the higher economic growth scenario, the churning can be as fast as every 2 years or 3 years. Or when economy goes slow, the churning can come down and it can be every 3 years or 4 years or even 5 years. Now in the last 3, 4 years, if you look at the new vehicle, many of the people are holding onto the new vehicle up to 5 to 6 years. Earlier, they would hold the vehicle until only 3 to 4 years. So all this is dependent upon the economic recovery and demand for the movement of the goods in the economy. So I can't give you a ballpark number, but it keeps changing depending upon the economic growth of the country.
Understood. And do you have the sense, I'm not sure you collect this data, but do you have a sense of what is the fleet utilization at this moment for your customers or operators? Is there a data that shows about utilization right now?
Utilization levels are very high now. In fact, there is a shortage of vehicles for some of the segments. Because as I understand, the people say it is because of the [ way bill ], I'm not really sure. There is a shortage of vehicles, and there is a big demand. And in many places, vehicles are not available. So the fleet utilization levels are at a peak now. So even some of the industry bodies have asked me whether I can supply vehicles, I said I'm only lender, I'm not supplier of vehicle. But there are some aggregators which are coming in who are trying to find a way to a smooth supply of vehicle throughout the year.
But most of these aggregators are local, not all in the level. So I feel, right now, utilization levels are very high, and there is a shortage of vehicle in certain pockets. It could be due to high seasonal demand because of the fruits, especially mango and other fruits normally is in the high demand now throughout the country. And also the high wheat movement. Wheat movement in the entire northern belt and Central belt, the wheat movement is in the peak now. So because of that -- so right now, it is -- utilization levels are very high.
Got it. Got it. And I suppose it also -- that lands into the argument that the operators are able to pass on the increase in input cost. For example, fuel.
Yes. They are easily able to pass it on now.
Can I check as well just to confirm, you mentioned that the other increase in vehicle value prices, the used vehicles up to 20% to 30% -- 25% to 30%. The LTV, the loan has come down below 70%. Is that right? Did I hear that right? Or...
Our LTV has been below 70% right from the beginning. We have -- the beginning in the last 3 years, we tightened the norm, and not because of the increase in value of the vehicle. The LTV has been curtailed at less than 70% for last 3 years, and that is continuing. Even where the vehicle prices have gone up, the LTV is maintained at the same level, but not decreased further due to the increase in value of the rate.
Understood. And my last question is around refinancing. You mentioned that you have a U.S. dollar bond coming due, I know this year, which I see is October 2022, of about USD 750 million. What's your refinancing plan on this?
So we will look at all opportunities. Domestic liquidity is good. We are carrying liquidity buffers, we indicated earlier. We will be able to easily to meet it. No issues regarding domestic borrowing and dripping this maturity. In case markets are okay, if there is opportunity to borrow offshore, we will look at, at that point in time. But as of now, domestic liquidity is good enough, and we have sufficient surplus liquidity where we can easily manage this liability. Not an issue at all.
The next question is from the line of Param Subramanian from Macquarie.
So most of my questions have been answered. There's 2 from my side. So firstly, on the OpEx. So if I look at the OpEx, sir, it has been rather flattish for the last 2 years, and of course, the investments and collections have come back for the company. So what is the reason for this [ situation ]? We already operate a leaner cost to income than [ previous year ]. So that's my first question on OpEx. And secondly, on AUM growth, if I look at the headline AUM growth number, that is still hovering around that 8% mark. And you've already highlighted how we utilize [indiscernible] going to be high demand is high [ so you are safely ] doing well. So any reason why the headline AUM growth is still at a [ lazy ] sort of level and why you are guiding for still only 12% growth? Yes, that's it.
Yes. First of all, we are advocating a 12% growth because of the certain uncertainties, which is still continuing because of the geopolitical issues. And we do not know how long the crude price will remain at present level and whether it will go up further. So we were a little circumspect on that aspect. So 12% is something which we feel comfortable growth for us. And normally, we don't expand business overnight because we recruit, train people and then expand business. We don't laterally recruit and expand business. So that's the one reason.
As far as the OpEx is concerned, we have managed it well for last 2, 3 years, trying to be as frugal as possible. But we always view guidance of 22%, 23% on the OpEx because the -- as business grows, then definitely, there will be some other expenses, including the cost of acquisition of new technology, new platform, all those will be there. So with all this into consideration, we view 22% to 23% guidance.
Sir, this is cost to income or OpEx growth?
Yes. cost to income.
Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Umesh Revankar, Vice Chairman and Managing Director, for his closing comments.
Yes. Thank you. Thank you for joining. This quarter, we have come out with a good set of numbers, and we are hoping that with economic recovery is visible, at least in India and budget being really strong on the infrastructure spend. We are confident that momentum will be maintained throughout the next financial year. And when we meet next time, we'll again examine [ that ].
Sir, should I conclude the call? Hello? Ladies and gentlemen -- yes, sir, please proceed. Hello? Sir, you're reconnected.
It's okay now.
Okay, sir, I'll conclude the call. Thank you. Ladies and gentlemen, on behalf of Shriram Transport Finance, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.