Shriram as a combined entity better placed to grow as economy rebounds

The Shriram Group has commenced the consolidation of its two main lending companies Shriram Transport Finance Company and Shriram City Union Finance. Umesh Revankar, vice-chairman designate of the newly merged entity to be called Shriram Finance, explains the advantages and timing of the merger in an interview. Edited excerpts:

This merger has been in the works for three years now. Why did you choose to go ahead at this juncture?
The economy is now recovering and I am able to see a bounceback in demand for FMCG, consumer durables and discretionary spending which is an indication that economic growth will be much better going forward. This year, growth is predicted at 9.5% and the next year it is expected at 6% to 7%, but I expect it to be 8% to 9% because discretionary spending will attract fresh private capital which has not come in for four to five years now. Once that happens we will be in the right position to take advantage of it, and being a combined entity enabled by technology, we should be able to catch market share much better.

How will it help in overcoming problems linked to economic uncertainty?
Our collections were not hit to the extent of others post-Covid. Yes, our Stage 3 bad loans increased, but it was a temporary phenomenon. Our Stage 3 bad loans went up to around 9.5% last year, which came back to 7.3%, and this time it again went up to around 8.5% in the first quarter and came down to 8.2% in the second quarter. We have a target of bringing it down to below 7% by the end of the fiscal. Trucking is considered to be cyclical and when you are in an upcycle you get good value and when you are in a downcycle then people look at other companies. When you have multiple products, you have multiple engines to fire on and it becomes easier to keep generating revenue from products, which helps in counter-cyclicality. Lenders and rating agencies also prefer that companies have a diversified rather than a single portfolio.

How will it help in terms of funding?
A bigger treasury will help us negotiate better and price better. A rating upgrade should happen to the extent of at least the City Union portfolio because of the merger. The City Union portfolio was AA and their Stage 3 loans were a little less than transport finance. They slowed down significantly in the last two years as the risk was higher and we were able to grow during that time. We will have combined capital adequacy of about 24% so we will not require any capital at least in the short term.

What is the projected growth in the next three years?
We should be able to grow the top line in double digits. Both the businesses were growing in single digits and combined, we will easily grow above 10% in the next couple of years.