Transcrición editada de conferencia de presentación de M & MFIN.NSE ou presentación de conferencias 15-maio-20 11:45 GMT

Mumbai, 16 de maio de 2020 (Thomson StreetEvents) – Transcrición editada de ganancias ou presentación de conferencias de ganancias de Mahindra e Mahindra Financial Services Ltd Venres 15 de maio de 2020 ás 11:45:00 GMT

Mahindra & Mahindra Financial Services Limited – VP de tesourería e asuntos corporativos

Mahindra & Mahindra Financial Services Limited – Vicepresidente, MD e membro da xunta executiva do grupo

Elara Securities (India) Private Limited, División de Investigación – AVP, líder de analistas e financeiras diversificadas

Batlivala & Karani Securities India Pvt. Ltd., División de Investigación. Analista de investigación

Señorías, bo día, e benvidos á Mahindra Finance Q4 e FY ’20 Earnings Conference Call, organizada por ICICI Securities. (Instrucións do operador)

Teña en conta que esta conferencia está a ser gravada.

Agora entrego a conferencia ao señor Abhijit Tibrewal. Grazas, e máis para ti, señor.

Abhijit Tibrewal, ICICI Securities Limited, división de investigación – Analista de investigación [2]

Grazas, Steven. Boas noites, a todos. Teño un gran pracer en ter connosco aquí hoxe, o equipo de liderado de Mahindra Finance. Contamos con nós, o señor Ramesh Iyer, vicepresidente e director xeral; V. Ravi, director executivo e CFO; Rajnish Agarwal, EVP, Operacións; Dinesh Prajapati, SVP, Tesouro e Asuntos Corporativos; e o señor Rajesh Vasudevan, contas do SVP.

Están aquí para discutir o Q, o rendemento da compañía no Q4 FY ’20 e as perspectivas empresariais. Imos ter unha sesión de preguntas e preguntas nesta discusión.

Déixeme agora entregar o chanzo ao noso honrado convidado de Mahindra Finance.

Señor Iyer, comparte as súas observacións sobre os resultados.

Ramesh Iyer, Mahindra e Mahindra Financial Services Limited – Vicepresidente, MD e membro do Consello Executivo do grupo [3]

Ola Boas noites, a todos. En primeiro lugar, desculpas sinceras por retrasar esta chamada, suponse que o debemos ás 5:15. Estamos a 1 hora atrás, principalmente provocada pola nosa incapacidade de transferir os resultados aos intercambios, e iso conseguiu un pouco retrasado. Non obstante, as miñas sinceiras desculpas e moitas grazas por unirte a esta chamada.

Realmente non entraría en números de liña. Iso debe estar contigo. E a través do Q&A, podemos realmente xestionalo. Pero gustaríame máis narrar onde estamos, que vemos no chan e onde vemos de aquí.

Así que o primeiro é, creo, que agora pasa máis dun mes que o bloqueo está moi contento de informar que preto de 500 das nosas sucursais xa están en funcionamento e que se abriron nas zonas verdes e laranxas do país. E como dixen, están a traballar e comezamos a ver walk-in, tanto para pedir novos préstamos como para o reembolso das cotas. Así que realmente confíe moita confianza en que as cousas comezan a chegar a unha certa normalidade. E ao longo dun período de tempo, seguro, establecerase e as cousas comezarán a suceder.

Pensamos moi decididamente que, dada a boa colleita desta tempada, na maioría dos estados, o fluxo de efectivo da granxa está aguantando. E xa o estamos a presenciar a través de coleccións incluso neste período.

Como falamos, se estivésemos a ver cal é a porcentaxe dos nosos consumidores que optaron pola oferta de moratoria, creo que preto de 75 por cento máis levaron a moratoria, pero os que non, en gran parte, pertencían á comunidade agrícola, onde eles sentiu que os seus fluxos de caixa mellorarían e poderían pagar. A verdadeira pregunta era, como van vir e pagar ou como imos ir a cobrar? E por iso, cando lles demos opcións de depositar nos bancos ou transferencias dixitais, etcétera, algúns deles tomaron esa opción. E abril foi testemuña dunha recollida digna, e maio, 15 días de recadación xa superou ou superaba lixeiramente o que recollemos en abril. Entón, ata ese punto, sentímonos extremadamente seguros e felices de que os consumidores volvan estar á normalidade, mesmo nesa fronte.

Xa o dixemos antes e seguimos mantendo, incluso antes do impacto de COVID, dixemos, calquera normalidade dos volumes empresariais, só podiamos ver despois de outubro, é dicir a tempada de festivais. E segue a aparecer que só comezaría nese momento, porque o BS-IV ou BS-VI na fronte do vehículo aínda está clasificado e, polo tanto, a xente pode decidir mercar vehículos novos. O lado do tractor xa mostra tracción. Cremos que o segmento de vehículos de propiedade definitiva será definitivamente o que amosará mellor tracción neste período. A xente quere adquirir un vehículo de propiedade, en vez de investir nun vehículo novo. Entón, iso podería converterse nunha historia de cambio ou podería converterse nunha historia, que xurdirá moito máis rápido. Entón, pensamos que, mentres as cousas comezarán a suceder, pero co tempo poderemos comezar – falemos de certa normalidade en canto a volumes, etcétera, veríamos claramente que será despois de outubro, onde empezaríamos a ver. isto. Son momentos nos que cremos que as nosas prioridades son garantir que os empregados volvan con confianza para traballar e que non teñan ningún problema de sentimento nin temor antes de volver ao traballo. Así, hai moitos programas de compromiso dos empregados en termos do noso programa de comunicación, etcétera.

Durante este período, centrámonos definitivamente en áreas onde realmente poderiamos controlar e reducir os custos. E nunha das nosas chamadas anteriores mencionara que esta era a nosa área de atención. Identificamos preto de 8 ou 9 áreas centradas nas que poderiamos reducir o custo, e algunhas delas reducen o custo da nosa filial. Estamos en negociacións con varios propietarios e recibimos sinais moi positivas de aceptar reducir as rendas dun 20%, 25% máis ou menos. Así, esa é unha área de enfoque moi clara.

Creo que estamos a buscar todos os contratos subcontratados que temos por seguridade ou para BPO, etcétera, e cremos que hai oportunidades moi claras para que poidamos renegociar os prezos ao redor de todo isto. Polo tanto, estamos seguros de que, con todos os nosos esforzos cara aos programas de redución de custos durante un período de tempo, veremos o beneficio deste ano, a medida que medramos ao longo do ano e chegamos ao final do ano. Veríamos un beneficio digno que saia del. Se só teño que poñer un número ao seu redor, cremos que é definitivamente posible un aforro de 40, 50 puntos básicos e todos os esforzos postos en marcha durante un ano completo. Entón, esa será unha área moi forte.

En canto ás coleccións xerais, como dixen, mentres que o lado da granxa comezou a responder positivamente ao reembolso, etcétera, creo que o lado do vehículo comercial, o modelo de taxi agregador, dependente do condutor, principalmente das empresas que son dependente do condutor, onde os condutores volveron como emigrantes ás súas respectivas localidades de orixe, poderían tardar un pouco máis en retroceder, como potencial gañador.

Mesmo se as cousas se normalizasen, digamos, o bloqueo debe levantarse a finais de maio máis ou menos, cando a xente volva ao traballo e devolva o seu vehículo en ganancias e empecen a gañar e empecen a pagar, podería levar outro. trimestre máis ou menos. Así que teremos que vivir este punto de dor durante outro trimestre polo menos antes de que poidamos dicir que todo volve á normalidade.

Nesta dirección, nas contas de marzo do 20, tomamos unha disposición adicional cara ao futuro baseada no que vemos que é probable que estea no mercado. Cremos que tomamos unha actitude agresiva para tomar esa disposición e poderiamos beneficiarse dela a medida que as cousas comezan a cambiar. E poderiamos obter o beneficio da reversión a medida que avanzamos.

Ata o de agora non se escoita nin cremos que os clientes poidan querer entregar os seus activos e cousas así. Non creo que iso vaia a ser a historia, porque a maioría destes activos están gañando activos, son produtos que dan vida a moitos dos nosos consumidores. Veríamos un retraso definitivo, pero non os vemos por defecto ou unha rendición derivada diso.

Entón, se teño que concluír de onde vai o negocio ou de onde serían as coleccións, creo que dado un cuarto ou 2, as cousas deberían parecer moito, moito máis normal. E como tomamos unha posición agresiva en termos de aprovisionamento adicional, etcétera, debería beneficiarnos substancialmente nesa dirección.

Non vemos demasiada competencia xurdindo durante este tempo, porque se non tes as súas ramas físicas e cousas así nesas áreas, non é fácil que alguén veña agora e empece un negocio. E, polo tanto, pensamos que os xogadores existentes se verán beneficiados cos volumes, mentres que os volumes en xeral probablemente baixen. Creo que o ano ’20 será un ano, que non se pode comparar co pasado e faría referencia, xa sexa un crecemento ou un decrecemento. Creo que o ano 20 haberá que analizar desde o punto de vista de como se volve a normalizar o negocio e cales son os fundamentos do negocio que funciona a favor e cales son os cambios que estamos dispostos a provocar faino traballar a favor.

Así que o movemento dixital en canto a dar oportunidades ao consumidor para poder amortizar dixitalmente ou incluso solicitar créditos dixitais, que podemos analizar, avaliar e prestalos, será definitivamente unha das áreas centradas desde onde verá o cambio. o noso lado.

Tamén pensamos moi firmemente, dada unha base de clientes moi grande e un empregado moi local, pensamos que si, ten un coñecemento moi local, será unha vantaxe engadida durante este período, porque os nosos clientes existentes poden querer préstamos a curto prazo, que nós lanzara como un programa, incluso 6 meses, 8 meses atrás, para o noso cliente existente cun historial excelente. E creo que iso é algo que nos axudará a crecer durante este período, pero seremos moi selectivos con quen queremos proporcionar este produto, pero si, vemos iso como unha oportunidade.

Creo que a área importante para concentrarse realmente nestes clientes tamén será o lado da responsabilidade en canto a como estamos preparados / as do lado da responsabilidade. E quero confirmar que, aínda que esta situación continuase do mesmo xeito durante os próximos 6 meses, estamos moi, moi cómodos para facer unha declaración de que, temos arranxos adecuados para a liquidez e poderiamos cumprir todos os nosos pasivos. , incluíndo pagamentos de xuros a tempo. Seriamos capaces de satisfacer todos os nosos custos fixos puntualmente. Non vemos ningún problema na fronte de fluxos de caixa, aínda que supoña que a situación actual se ía prolongar durante un período de tempo máis longo.

Creo que se trata de momentos nos que hai que ter un control absoluto sobre o que está a suceder, pero o que é máis importante, ten que ser moi claro e ten que ter unha práctica ética e de goberno moi elevada. Non é hora de realizar atallos en nada. Creo que non imos someter ningunha desas presións. Creo que aseguraremos que o que facemos sexa absolutamente transparente desde a perspectiva do consumidor. E cremos que nos situará por diante de moitos en termos das nosas relacións cos fabricantes OEM, en termos das nosas relacións coa comunidade de concesionarios, así como coa nosa base de clientes existente.

Cando estabamos a falar, por suposto, a outra área de custo que tamén fixariamos está na fronte do empregado. Non prevemos unha redución de empregados nin un recorte salarial como opción a mirar. Pero reformular o salario e cambiar a mestura entre fixo e variable é unha das opcións nas que estamos traballando moi fortemente. E cremos que iso axudaría á empresa a aforrar cantidades importantes, se o rendemento global debería sufrir debido ás condicións do mercado, pode que a empresa non teña que supor un custo.

O tema máis importante que intento dirixir é claramente: levar controis apropiados e garantir que o custo se manteña ben baixo control, a liquidez estea adecuadamente enfocada e, polo tanto, disponse de liquidez adecuada para cumprir todos os pasivos, incluído o custo fixo. requisitos, para centrarse no crecemento empresarial en áreas de oportunidade, onde pensamos que o cliente precisa dun vehículo, que é un sustento e un produto que gaña para eles.

E, por último, para asegurar que nas áreas onde se produzan ingresos, onde os clientes xa comezan a gañar que aseguramos que as nosas liquidacións sexan ben recollidas e controladas. E dado isto, e coa postura que tomamos para ter xa maior disposición, nós que cremos que o ano ’20 vería mellorar a calidade do noso activo, unha mellor cobertura das nosas proporcións NPA e unha mellor xestión da a nosa garantía.

Con todo este tema, pensariamos que o ano 20 sería un ano de, sinceramente, de corrección e investimento, sería un ano de revisión dos procesos e de acadar controles sobre os custos que estamos a pensar, e acabaría como un ano, onde teriamos construído unha plataforma substancial para poder crecer a partir de aí na nova era que abrirá post esta situación, que cremos que pode comezar o festival.

Creo que deixaría de facelo como os meus primeiros comentarios e estamos abertos a preguntas que tomaremos de xeito periódico.

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Preguntas e respostas

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Operador [1]

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(Instrucións do operador) A primeira pregunta é da liña de Mahrukh Adajania de Elara Capital.

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Representante da empresa non identificado, [2]

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Señor, cal sería a súa liquidez total no balance agora mesmo? E canto subirías nos últimos 2 meses? ¿Cales serían as túas amortizacións ata setembro e ata decembro?

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Ramesh Iyer, Mahindra e Mahindra Financial Services Limited – Vicepresidente, MD e membro do Consello Executivo do grupo [3]

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Dinesh, queres levar esta pregunta con datos?

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Dinesh Prajapati, Mahindra e Mahindra Financial Services Limited – VP de tesourería e asuntos corporativos [4]

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Si. Compartimos tamén na nosa presentación. Temos uns investimentos líquidos aproximadamente 4.500 INR dispoñibles ata hoxe. E teriamos aumentado nos últimos dous meses máis de 3.000 INR a través de varios modos en forma de préstamo a prazo, a titulización LCD xuntada. Ofrecemos unha axenda uniformizada de vencementos, que se achegará entre maio e setembro, se podes referirse á nosa presentación.

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Analista non identificado, [5]

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Seguro. E ata decembro, terías aproximadamente a cantidade?

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Dinesh Prajapati, Mahindra e Mahindra Financial Services Limited – VP de tesourería e asuntos corporativos [6]

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Haberá que volver e referilo – comprobalo, pero en xeral – aproximadamente todos os meses, haberá unha madurez próxima aos 1.000 crocas INR.

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Representante da empresa non identificado, [7]

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Dinesh, pode compartilo fóra de liña, con todos os investimentos máis tarde.

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Dinesh Prajapati, Mahindra e Mahindra Financial Services Limited – VP de tesourería e asuntos corporativos [8]

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Seguro. Seguro.

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Analista non identificado, [9]

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E canto subirías do TLTRO, o INR 2.000 crores, non si?

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Dinesh Prajapati, Mahindra e Mahindra Financial Services Limited – VP de tesourería e asuntos corporativos [10]

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Non. En abril, ata a data actual, aumentamos ao redor de 675 INR crores.

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Analista non identificado, [11]

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Sentímolo, INR 675 crores. Está ben. O resto son préstamos a prazo e poderías compartir algunha taxa incremental de endebedamento ou o custo marxinal do préstamo, só agora fronte ao pre-COVID?

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Dinesh Prajapati, Mahindra e Mahindra Financial Services Limited – VP de tesourería e asuntos corporativos [12]

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Así, por último, os bonos que conseguimos no TLTRO sitúanse no 7,5 – 7,65%

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Analista non identificado, [13]

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Está ben. E os préstamos a prazo?

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Dinesh Prajapati, Mahindra e Mahindra Financial Services Limited – VP de tesourería e asuntos corporativos [14]

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Os préstamos a prazo están ligados á MCLR. Así que calquera que sexa o presente MCLR.

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Operador [15]

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A seguinte pregunta é a liña de Ritika Dua de Elara Capital.

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Ritika Dua, Elara Securities (India) Private Limited, División de Investigación – AVP, líder de financeiros e analistas diversificados [16]

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Por iso, en primeiro lugar, sobre a moratoria: desculpe un pouco as súas observacións de apertura. Entón, cal é a porcentaxe dos seus prestatarios que solicitaron a moratoria? E a segunda pregunta é, algunha comprensión sobre o aprovisionamento que tomou, e que compartiu iso, pensamos que é naturalmente unha natureza bastante conservadora, quizais algo de comprensión sobre o que había detrás do número?

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Ramesh Iyer, Mahindra e Mahindra Financial Services Limited – Vicepresidente, MD e membro do Consello Executivo do grupo [17]

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Así que en termos de porcentaxe de clientes que optaron pola moratoria estaría ao redor, dixen, o 75 por cento impar. E como tamén o cuantifico dicindo que, en boa medida, a comunidade agrícola e profesionais de uso persoal como os profesores locais, os médicos e ese tipo de persoas que tomaron. Quen ten unha renda fixa, son os que non optaron á moratoria.

En canto á lóxica ou o razoamento deste tipo de aprovisionamentos, creo que o fixamos dende 3 ou 4 ángulos. Creo que, primeiro, miramos dende varios segmentos, que son os segmentos de clientes que poden tardar un pouco máis en volver á normalidade, dadas as condicións actuais. Ese é un. Así que dixen, o vehículo comercial ou o agregador de taxis son o tipo de segmentos que cremos que poderían levar un pouco máis. Calquera que estea no negocio de transportes de pasaxeiros, inicialmente, a xente resistiríase a viaxar nese tipo de modo con máis xente dentro. Entón, polo tanto, os volumes de negocio poden descender ou o número de pasaxeiros que viaxan. Entón, miramos iso como un enfoque.

O segundo que examinamos como enfoque é, dado que durante este período de 1 ano, queremos facer máis socios cos clientes e non recorrer a ningún tipo de devoluciones, etcétera. Polo tanto, iso podería significar ir cara adiante, pode haber algunha caída no vehículo, o prezo pode pasar nunha fase posterior se se decide retirar do vehículo. Así que tomamos en conta algunha posibilidade que se derivase diso.

O terceiro que miramos é dunha zona. Se os clientes que se atopan en zonas vermellas e que teñan este tipo de aplicacións, incluso fixemos un aprovisionamento un pouco máis agresivo, porque a zona vermella, segundo pensamos, é levaría pouco máis tempo do que obviamente o verde e o laranxa. Entón, combinando todo isto, temos un certo tipo de feltro, é necesario que a porcentaxe de ECL pase de 30 a 35, e nalgúns casos, ata 40, aí en Zona vermella, etcétera. E iso levounos a este número, para o que xa temos previsto.

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Ritika Dua, Elara Securities (India) Private Limited, División de Investigación – AVP, líder de financeiros e analistas diversificados [18]

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Señor, unha cousa, na zona vermella, señor, hai algún número que, que porcentaxe das nosas sucursais ou que porcentaxe de clientes hai hoxe na zona vermella?

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Ramesh Iyer, Mahindra e Mahindra Financial Services Limited – Vicepresidente, MD e membro do Consello Executivo do grupo [19]

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Do 28% ao 30% do noso cliente ou sucursal ou activo, como queiras chamalo, arredor do 28%, o 30% estaría en zona vermella. Pero é importante, de novo, comprender a zona vermella non significa que non vaia a pasar todo alí, non? Así que só levará un mes máis que quizais ou dous meses máis que unha zona verde, posiblemente. Entón, pero si, aproximadamente o 28% ou o 30% dos nosos clientes estarían nesa situación.

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Ritika Dua, Elara Securities (India) Private Limited, División de Investigación – AVP, líder de financeiros e analistas diversificados [20]

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Está ben. E o número do 75% que mencionabas foi este antes valorado?

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Ramesh Iyer, Mahindra e Mahindra Financial Services Limited – Vicepresidente, MD e membro do Consello Executivo do grupo [21]

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Sentímolo?

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Ritika Dua, Elara Securities (India) Private Limited, División de Investigación – AVP, líder de financeiros e analistas diversificados [22]

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O 75% que di en termos da moratoria, foi como …

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Ramesh Iyer, Mahindra e Mahindra Financial Services Limited – Vicepresidente, MD e membro do Consello Executivo do grupo [23]

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Tanto en canto a valor como en número, máis ou menos, serían iguais. Quizais un 2%, un 3% aquí e alí.

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Operador [24]

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A seguinte pregunta é a liña de Karthik Chellappa de Buena Vista Fund Management.

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Karthik Chellappa, Buena Vista Fund Management, LLC – Analista de investimentos [25]

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O INR 560 crore de subministración que se toma para COVID, como se dividirá, xeograficamente? Quero dicir cales son os estados que contribúen á maioría desta disposición?

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Ramesh Iyer, Mahindra e Mahindra Financial Services Limited – Vicepresidente, MD e membro do Consello Executivo do grupo [26]

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Creo que o leste tería contribuído pouco menos porque o leste ten moitas zonas verdes. Pero como non, pensaría que norte, oeste e central case quitarían o 60%, o 70% quizais. Pero é máis que xeografía, como dixen, miramos a zona Vermella como unha aproximación. Analizamos varias aplicacións, que é probable que sufran o segundo enfoque. E o noso enfoque de asociación de non querer quitar os activos, senón darlle tempo ao consumidor para gañar e amortizar son o enfoque 3 – non o faría – realmente non miramos o estado a dicir, pero definitivamente, unha vez que mira zona vermella, a velocidade entra en xogo automaticamente. Nese contexto, pensaría que este sería o máis baixo e engadir o sur, oeste, central, norte podería case quitar igual parte, posiblemente.

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Karthik Chellappa, Buena Vista Fund Management, LLC – Analista de investimentos [27]

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E señor, é este un caso no que identificou un determinado stock de créditos e tomou de inmediato unha cobertura do 40%, o 50%. Entón, esa é a confianza que che brinda, iso creo que no segundo semestre do ano debería ser axeitada? Ou é como un subministro subministro nunha opción de stock maior?

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Ramesh Iyer, Mahindra e Mahindra Financial Services Limited – Vicepresidente, MD e membro do Consello Executivo do grupo [28]

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Non. Como dixen, non, aplicamos os 3 xardíns, non? E se esas hipóteses comezasen a mellorar, entón o beneficio iría para nós. Agora, se a suposición debe aparecer posiblemente dentro de 3 meses, 4 meses, 6 meses, é algo que haberá que esperar e ver como se abren as cousas. Pero claro, cremos que, como por exemplo, tomamos en zona verde, digamos que a aplicación de transporte ou a solicitude de persoas, cremos que, iso podería xirar moito máis rápido que nunha zona vermella.

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Karthik Chellappa, Buena Vista Fund Management, LLC – Analista de investimentos [29]

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Está ben. Xenial. E señor, neste momento, non tomou moratoria de ningún banco – señor, non aproveitou ningunha moratoria de ningún dos …

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Ramesh Iyer, Mahindra e Mahindra Financial Services Limited – Vicepresidente, MD e membro do Consello Executivo do grupo [30]

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Non, non tomamos. Non tomamos.

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Karthik Chellappa, Buena Vista Fund Management, LLC – Analista de investimentos [31]

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Está ben. E o comentario sobre tractores, creo que foi – á marxe foi positivo. En canto ás túas outras clases de activos, xa sexan vehículos de utilidade, coches ou flotas, que cre que serán os primeiros en recuperarse e que serán os últimos. Probablemente, penso que o CV é o último, pero …

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Ramesh Iyer, Mahindra e Mahindra Financial Services Limited – Vicepresidente, MD e membro do Consello Executivo do grupo [32]

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O CV podería ser o último, pero incluso en CV, LCV e camión único, os operadores conducidos polo propietario rebotarán máis rápido que o operador da flota, porque o problema do operador da flota tamén estará dispoñible polo condutor. Polo tanto, iso podería levar máis tempo. Creo que as operacións de taxi: as operacións de taxi agregador, porque son moi semi / urbanas, centradas no urbano, poderían tardar pouco máis. Pero os que máis rápido botan, como o tractor, é primeiro, quizais, seguido de recollida, seguido de 3 rodas, o transporte de mercadorías, os pequenos transportistas de paquetes, creo que este tipo de segmentos voltarán máis rápido. Non hai que esquecer que na India rural, o modo de transporte de persoas segue sendo en mans de operadores privados. Non hai demasiados sistemas de transporte público.

Normalmente, o que sucedería é que o número de persoas que agora viaxan por estes vehículos descenderán. E iso, sinceramente falando, pode converterse nunha oportunidade para que se vendan máis vehículos. E dado que posiblemente poida ser unha oportunidade temporal, a xente pode buscar un vehículo de segunda man para ese propósito, en vez de un vehículo novo para ese propósito. É probable que a demanda de vehículos aumente. É certo.

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Karthik Chellappa, Buena Vista Fund Management, LLC – Analista de investimentos [33]

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Conseguín. Moi claro. Señor, só un seguimento máis …

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Operador [34]

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Señor Chellappa? Señor, sentímolo de interromper, señor, pero por calquera seguimento, pídelle que volva a entrar na cola.

(Instrucións do operador) A seguinte pregunta é da liña de Umang Shah de HSBC Securities.

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Umang Shah, HSBC, Research Division – Analyst of Financials [35]

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I just wanted to understand. So the reconciliation between high reg homes and India AS which was given in the presentation, there appears to be a shortfall in the Stage 3 provisions. But obviously, there are excess provisions in Stage 1 and Stage 2. So how should we read into it? I mean do we need to kind of build a gap on the Stage 3 provisions in coming quarters?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [36]

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No. So stage 3 is based on the expected credit loss. So really one doesn’t have to fill it up, right? We have taken some extra provision in Stage 3, assuming or estimating that the expected loss could slightly go up in the current situation, and which is what I was explaining that, if situations were to improve faster, we could even get the benefit of reversal over a period of time. So those really are not comparison. I mean when RBI wanted us to compare both, it is to ensure — because earlier, there was no Stage 1, Stage 2 per se, if you really look at it. So therefore, they wanted to ensure that the overall provisions should not fall short. And if they were to fall short, they wanted us to make an extra provision, if need be. So in our case, since we’re already carrying provision higher than what we would have otherwise carried under the earlier regime, that need has not arriving there.

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Umang Shah, HSBC, Research Division – Analyst of Financials [37]

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Okay. All right. And just one question on operating costs. Given that there is a very sharp fall in OpEx this quarter, are there any cost deferments, which has happened?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [38]

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No. No. There is no cost deferment whatsoever. As I said, on the people front, clearly, if there are incentive programs, if the performance has not been there in March or in February, whichever month, then those incentives are not required to be paid, either to dealer or to employees or anybody for that matter. Similarly, as I said, we have been in the focus as to reduce cost for the last 6 months. I wouldn’t say that everything is already put to practice, but the benefits have started flowing in for sure. So that’s the second one, right? And the third one, I think we explained even I think in the last call or maybe something before that, that there was this fixed cost coming out of gratuity or whatever, which — because of the recasting of the compensation which was done. When restated, I think there is some benefit arising out of that. But there is absolutely nothing which have been deferred, which will come and hit us in the next 2 quarters or something. Nothing of that kind.

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Operator [39]

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The next question is from the line of Anubhav Agrawal from ICICI Bank.

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Anubhav Agrawal, [40]

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I wanted to know what is the current collection efficiency across different products? And how it has changed from the pre-COVID situation to the current situation?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [41]

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No. So I don’t have it by product, but I can tell you that in April, our efficiency was something like a 15%, 16% as against, we thought it would be 0 virtually. So there are people who opted to pay through ACH and direct deposit, et cetera. And my understanding is, out of that, decent percentage would come from people who earn out of the farm cash flow. So for us, May is concerned, in the 15 days, we have already reached the collection that we had in April. So we would expect that May would actually be almost double of April, which is a excellent signal from the marketplace. There, again, the collections would largely come from farm cash flows, mainly in states like MP, UP, et cetera.

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Operator [42]

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The next question is from the line of from Nischint Kotak.

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Nischint Chawathe, Kotak Securities (Institutional Equities) – Associate Director & Senior Analyst [43]

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I just wanted to understand the GNPA has typically comes down for you between the third and the fourth quarter, but somehow it has not happened this year. I mean, should we really think about it?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [44]

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No. So very honestly, our expectation was that, we would close GNPA exactly like last year. But unfortunately, the major part of March was defeated. And we were actually cruising very, very well towards the same and suddenly comes all of these events, and it just gets stuck. My very strong belief is that, once we are out of this situation, you could see a sharp fall in that happening as the market conditions normalizes. So it is — I would think, something that we could have done in March, has got, by force, postponed. Because in March, what happens is, manier times, even reposition release is very high, because we do bring back the assets, customer comes and settles and takes it back. So none of those activity could actually be performed in March. And all of us know that March for us, even within the fourth quarter, March is an extremely large month. So I would think, we would have lost, partly, if not more, 1.5% correction possibility of the gross NPA for sure.

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Nischint Chawathe, Kotak Securities (Institutional Equities) – Associate Director & Senior Analyst [45]

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And that may be the similar trend in housing business as well?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [46]

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Oh, yes. Housing, again, even if the customer had the money, right, he would like to store not knowing what’s the next in future. So there also, you will see a similar correction happening as things open up. But unfortunately, this happened in March. Therefore, we had to sail through March, and if we were to get into the situation in April, we would have been talking actually of a very different number.

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Nischint Chawathe, Kotak Securities (Institutional Equities) – Associate Director & Senior Analyst [47]

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Sure. And just one thing, Stage 3 coverage at 31%. So this is including the INR 500 crores?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [48]

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Yes, yes. I mean, out of INR 500 crore, maybe INR 400-odd crore would have gone into Stage 3. Rajesh, is that right?

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Rajesh Vasudevan, Mahindra & Mahindra Financial Services Limited – VP of Accounts [49]

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Yes. INR 474 crores. Around INR 270 crores.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [50]

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Yes. So out INR 574 crores, INR 474 crores would have gone into Stage 3 to push up the coverage to 31%.

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Nischint Chawathe, Kotak Securities (Institutional Equities) – Associate Director & Senior Analyst [51]

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And your Stage 1, Stage 2 coverage quarter-on-quarter is stable. So does that mean that the Stage 2 numbers are stable quarter-on-quarter?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [52]

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No. So once you get some moratorium benefit, then they stayed there. It didn’t move forward.

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Nischint Chawathe, Kotak Securities (Institutional Equities) – Associate Director & Senior Analyst [53]

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Okay. And most of the extra provision has been pushed into the Stage 3 category?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [54]

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Yes. This is why I explained, how we went product wise and zone wise and application wise.

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Nischint Chawathe, Kotak Securities (Institutional Equities) – Associate Director & Senior Analyst [55]

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Sure. That’s it. And just one final question, if I can? And this is on the expenses side. There has been a sort of a sharp decline, so how should one think about it?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [56]

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No. So as I said, the company’s focus has been on the cost, definitely. And we’ve been trying to explain as to when would we start to get the benefit and I must tell you that this is not over yet. We are still focusing on, as I said, on 3 or 4 major items of cost savings. And as the confirmation, none of the expenses, which reflected as reduction here, is something which is in the nature of postponement. None of them. So there, actual reduction that has happened. And we are focusing on at least 3 or 4 very strong areas of production, which we will see going forward, we will get the benefit of it through the year.

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Operator [57]

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(Operator Instructions) The next question is from the line of Deepak Poddar from Sapphire Capital.

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Deepak Poddar, Sapphire Capital Management LLC – Portfolio Manager [58]

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Am I audible?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [59]

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Yes. But with some disturbance. But go ahead, you are.

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Deepak Poddar, Sapphire Capital Management LLC – Portfolio Manager [60]

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And so I just wanted to understand in terms of — your comment was the demand scenario over next 6 months, how do you see demand scenario shaping up?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [61]

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No. So as I said, in the order of possibility, I think tractor demand is already beginning to be seen. So for us, the small pickup, the small 3-wheeler for goods carrying, the LCV will be the segment which will see traction for sure. We would start to see pre-owned vehicle definitely showing good demand and traction, but supply may not match that demand, I may — I would believe so. And on the commercial vehicle side, it will be a single truck or owner-driven truck will possibly show some traction. I would put it in that sequence, but commercial vehicle would definitely take much longer. The passenger car purchase could take longer. But commercial applications, small vehicles or midsize vehicles could show faster traction. Tractor would definitely show much faster traction.

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Deepak Poddar, Sapphire Capital Management LLC – Portfolio Manager [62]

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Understood. And — but you still be targeting growth in this year, FY ’21, maybe in single-digit growth or a double-digit — low- double-digit growth?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [63]

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I don’t know. You will compare this growth to which year because April, May, June, July virtually would be low volume or no volume kind of a month as I see from the market. So if we’re able to look at month-on-month growth over previous year, post October, one can see some stabilization. But otherwise, we would like to look at 2020 as a year where things not go well at the marketplace and they’re beginning to improve from October is the only way we will look at growth, not growth as comparatively previous year as a percentage and fixed method.

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Operator [64]

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The next question is from the line of Sanket from B&K Securities.

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Sanket Chheda, Batlivala & Karani Securities India Pvt. Ltd., Research Division – Research Analyst [65]

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Sir, I just missed the cost part, which we — the fund which we raised under TLTRO. So It was 7.5 to…

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [66]

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7.8. Dinesh, check, 7.5 to 7.8, right?

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited – VP of Treasury & Corporate Affairs [67]

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It’s 7.65.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [68]

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So Dinesh said, some — 7.5 to…

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited – VP of Treasury & Corporate Affairs [69]

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7.5 to 7.65.

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Sanket Chheda, Batlivala & Karani Securities India Pvt. Ltd., Research Division – Research Analyst [70]

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Okay. And sir, what would be your SMA-2 as a percentage of total book will be, can you give the number?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [71]

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Rajesh, do you have that with you? SMA-2 to percentage of total book. We’ll just give it to you, somebody will just pull it up.

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Sanket Chheda, Batlivala & Karani Securities India Pvt. Ltd., Research Division – Research Analyst [72]

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Okay. And sir, last one, so this increased provision that we have made of INR 474 towards this Phase 3, that is mainly on the back of thinking that expected credit loss will go up, the loss — even defaults will go up. But no provisioning has been done for an incremental dealing versus that might come up in the next 2, 3 quarters. Is that right?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [73]

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No. So therefore, we’re seeing the moratorium has been given up to May, right? And we definitely expect that between June, July, August, the customers will start paying their installment. May not all 3 installment, but at least out of the 3, they may pay 1 or 2. So they are not expected to move up in the ladder. But whereas the ones which are already in the zone beyond 90-day, to whom no other concessions have been given and they are in the same market and earning the same type of money, right? Therefore, we do expect that their buildup would be a little more. And by the time they either repay or they surrender or we retake the asset and sell, et cetera, there could be some delinquency that could arise out of that.

But if things were to start to improve, like every year, we see out of our NPA of closing, at least 40%, 50% of it gets sold during the same year. So we have — we believe that, that could take a little longer or a little stretched. And we have, therefore, estimated and made a provision. And that’s why I keep repeating myself that if we were to start collecting from those accounts, the benefit of the reversals could be higher.

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Operator [74]

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The next question is from the line of Roshan Chutkey from ICICI Prudential Mutual Fund.

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Roshan Chutkey, ICICI Prudential Asset Management Company Limited – Associate VP and Analyst [75]

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Firstly, sir, what percentage of our cars and UV segment are the tourist operator segment where the business potential has kind of got deteriorated significantly? And similarly, if you can share what percentage of our customers are the farmer segment, taxi segment, like you said, which is doing extremely well, I mean yes, where cash flows are very strong in this case. So if you can just share some numbers around that.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [76]

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So I — my numbers may not be exactly right, but I’m kind of — based on various reviews that have captured some numbers. But I think the taxi segment should be around 10%, 12%. The farming would be about 25-odd percent. The self business or whatever you call it or self-employed, if you may call, including traders would be around 15%, 18% would be the broad kind of a breakup.

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Roshan Chutkey, ICICI Prudential Asset Management Company Limited – Associate VP and Analyst [77]

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And the rest would be?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [78]

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It will be made various category, like contractors would be there like fleet operators would be there. So then it all splits itself into 5%, 3%, 7% of different difference. There could be mix. Some who are in farm plus college, right? So then we don’t put them under farm community. So like tractors, there are a large number of tractor owners who have 3, 4 months of farming and another 7 months of contracting.

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Roshan Chutkey, ICICI Prudential Asset Management Company Limited – Associate VP and Analyst [79]

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Right. And of those 9%, 10% of our city back in business, how many would be — what percentage would be single-truck operators?

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited – VP of Treasury & Corporate Affairs [80]

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Roughly 4%. Roughly for particular population, roughly — conservatively (inaudible).

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Roshan Chutkey, ICICI Prudential Asset Management Company Limited – Associate VP and Analyst [81]

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Okay. And sir, why do you think that pre-owned vehicles will do better?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [82]

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For very simple reason that it — let’s say that earlier 1 vehicle carried 7 people or 10 people. If they today are going to carry only 3, the number of vehicles — because the number of people are the same, right? It’s just that in one vehicle, the number of people are going to reduce. So the number of vehicle required will go up.

Now nobody is going to forecast that this is going to be a permanent reality, that in this country, only 4 people will travel in the rural India. But for next 6 months, 1 year, that could become the necessity. So instead of buying a new vehicle for this purpose, people will buy a pre-owned vehicle and put it to this use. And then they’ll continue to remain in that business because the investment is not very high, right?

So — and similarly, in many semi-urban locations, where people may not want to use public transport, some may use 2-wheeler to go on their own. some may use a small car, a pre-owned car to travel on their own. Because at this stage, with a little uncertainty into the future earnings, right, many people may decide that, « I need a vehicle, but I don’t want to invest so much into new. » So therefore, they may look for buying a pre-owned vehicle. Now when I say the pre-owned vehicle demand will go up, one should not estimate that the pre-owned vehicle will replace the entire new vehicle buying.

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Operator [83]

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The next question is from the line of Piran Engineer from Motilal Financial Services.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division – Research Analyst [84]

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Most of my questions have been answered. I just have a couple. Firstly, you mentioned that you lost an opportunity of 150 per GNPL collection because of COVID. Is that because you couldn’t auction the vehicle? Or what is…

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [85]

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No, no, no. See, ours is a very physical model where either customer comes to pay or we go to collect, right? And then suddenly, everything comes to a grinding halt and the customer has the money, but we can’t go and collect nor is he in a position to come and pay. There will be a very small percentage which will come from repossession and auctioning of the vehicle and all that.

But in rural India, in tractors and kind of a product, typically, what happens, if you bring back the tractor, they come. They may even borrow from their, what you call, family or whatever, and they come and settle the account. So these kind of settlements also could not happen during this period.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division – Research Analyst [86]

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But sir, then if it couldn’t happen, they would have been put under moratorium. So ideally, it would not have…

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [87]

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No, no, no. They are already an NPL. They cannot be given moratorium. These are accounts which are in 90-day-plus, which get settled — see what happens, they get municipality payment settlement, [AWD] settlement. Contract builds from the state government gets settled, right? So then they come and settle their due. That’s all the last quarter, especially the March is a very big month because all the government payments get released during those periods. And you see hell lot of people settling their account during that period.

And that’s the time when they also have a business demand. So when you take back their vehicle, they come and settle. Now this could not happen. Otherwise — see, typically, what happens is if you look at any year for that matter, December end, our outstanding NPA number, suppose it is 100,000. You will see them come down to 80,000, 74,000 number by March because those accounts get settled.

So I’m not talking of 2 EMI, 1 EMI guy not paying. So they would have anyway been frozen. I’m talking of people who are in NPA, who would have normally paid but could not pay. That’s why that 1.5% difference will come.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division – Research Analyst [88]

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Okay. Okay. I got it. And sir, second, just help me reconcile the numbers. About 25% of the customers did not take a moratorium, am I right?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [89]

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Yes. Don’t hold me by 25%, it could be 22%. It would be around that number.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division – Research Analyst [90]

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Okay. But the collection in April was still around 15%. So there is still a decent number of customers who did not take a moratorium and still did not pay in April.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [91]

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So you take the farmer — no, no, no. So you take the farmer. When you told him that you don’t take moratorium, but this will be the interest. He says, « I would rather not take moratorium but come and pay you end of April or beginning of May when I get my harvest money. » So the 25% will not reconcile to everybody surely will repay.

The 25% who did not take will have 3 or 4 categories: Some who have money, who will pay. Some who have money but will not use electronic means, but they can’t physically come and pay, so they will continue to remain in outstanding but did not take moratorium. There will be a certain category of people saying, « Why should I take moratorium and pay so much interest? I would rather pay you 1 month panel interest and come and pay you when things open up. » So you will have a mix of category in the people who have not taken moratorium. So please don’t correlate people not taken moratorium should have all paid in April.

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited – VP of Treasury & Corporate Affairs [92]

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There are tractor customers whose EMI may not fall due even in April.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division – Research Analyst [93]

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So then it won’t be then the denominator of the 15% calculation either?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [94]

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Yes, yes, yes.

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Operator [95]

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The next question is from the line of Tejas Mehta from Old Bridge Capital.

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Tejas Mehta, [96]

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So I have one question, and then on the reverse migration that you have seen. So a lot of people, a lot of laborers have moved back from cities to — back to their villages. So this is basically a positive challenge of 2 kinds. One is whatever income that you would have transferred from cities to villages or to the hometowns, that will go away completely at least in the near term. And then there would be an extra burden on their whole family who are living in the rural bank, whether they are farming community or whatever it is.

So in this kind of scenario, do you think that there would be a stress on the cash flow of all the rural banks? And therefore, the demand for vehicle, they may push back or the repayment would be too much that — to try and manage their own situation, which would basically mean that for you, the recovery would be much longer than what we may be expecting?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [97]

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Okay. So firstly, this assumes that a lot of laborer who are earning in city transport the money to rural to discharge liability that has been created in rural, right? That’s a fundamental assumption, or the money that gets transferred there is to acquire more assets. These are the 2 bases on which your question is dependent, right?

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Tejas Mehta, [98]

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Yes.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [99]

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Yes. But the laborer who earns here does not earn so much that he sends money there to either buy assets or judicial liability. This laborer who sends money there is for the family to regularly survive and consume with that money, right?

So this — the assumption of will asset buying suffer, will recovery suffer, may not happen. But if you look at it a little more positively, if these laborers have gone back to their respective home town, right, they have all been used locally during this farming situation as a laborer. So they have actually earned some money locally. And even yesterday, I was seeing the Finance Minister addressing that MGNREGA scheme. They can also enroll there and they can start to earn something and all kinds of stuff.

The third thing is if these are migrant labor from here, they will engage them sell only in labor. But if the migrant drivers and others have gone back, they may start buying some small vehicle for their daily livelihood. They may put an LCV. They may put a small, what you call, Bolero-type vehicle, pick-up vehicle, and they will start to earn something. So one way to look at it is that it can even push up demand in some pockets if the driver community has gone back from here, starts to buy vehicle there.

So far as the laborer is concerned, I’m not able to see a situation that they were earning so much here that this money was being spent there for either a repayment or for acquiring of more assets. But definitely, what can happen is, again, my guess on this, this laborer’s income stopping from here can push that family into some kind of a need for borrowing from either microfinance kind of a body or from a money lender or from their families temporarily until the person gets reemployed. So this kind of small-ticket loan need can go up to meet even their daily needs.

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Tejas Mehta, [100]

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Okay. Great. And sir, would you be able to shed some light around the activity at the APMC level that currently have gratuity levels being good or a bit faltering on the — at the APMC level?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [101]

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I think, again, honestly, I’m not tracking it very closely. But these are some mixed news that you get in some pockets. They are very active like before. But in some pockets, like outskirts of Mumbai and (inaudible) whatever, there seems to be a lot of restrictions. So I think you have to correlate it to they are closer to which town or city and what is the COVID situation in that location.

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Operator [102]

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The next question is from the line of Abhishek Murarka from IIFL.

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Abhishek Murarka, IIFL Research – VP [103]

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So sir, my question is your business is basically going to remain cyclical if it is predominantly vehicle related. And in the past, you have tried organically to do SME housing or consumer durable more recently. But the deal with organic efforts is that they generally take long and also depend on the external environment. So in the current environment, would you think of any inorganic mode to either make the standalone business more structural or to become part of some larger, more structured business yourselves? Any thoughts on that?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [104]

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So look at — first of all, culturally, any M&A opportunity we will look at should fit into our strategy, right? And we should have had that as our intention to be in that business. So which means, once again, if we look at M&A opportunity, more or less, we will look at around the same space in which we are there, which means if you have a problem, you’re multiplying your problem by taking somebody like that.

Now you say that, no, that’s not the route we want to take. Let’s get into something else altogether. Now that something else altogether as an opportunity should be so large that it becomes a game changer for you, right? Now you can pick up a company with, say, INR 5,000 crore assets, let’s say, they are in lab, right? Then what are you acquiring? Your — that’s not in your strategy because you have not gotten into lab business. And you are getting a size which is not a game changer because you’re running already a INR 70,000 crores, INR 80,000 crore vehicle balance sheet, right? So that INR 5,000 crores will come and only take away some of your mindshare of focusing on something of that type.

So that’s the reason we felt that it’s always good once you get to certain large site, it is good to organically grow. And if you get an opportunity to acquire in the same space that you are with a high-quality asset and in a good time, then one must look at it.

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Abhishek Murarka, IIFL Research – VP [105]

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Sir, the other way to look at it would be that you’ve become part of another structural business or larger business, where the cyclicality comes down, anything…

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [106]

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Somebody else to acquire us?

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Abhishek Murarka, IIFL Research – VP [107]

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If that is — maybe anything, what would you do to basically make your business less cyclical? Now acquiring, as you said, is obviously challenging. Is the other option something that you’re thinking about at all? Or is that not an option at all?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [108]

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I think that we are not looking at that as an option. I think we still think that the marketplace in which we are, the semi-urban rural market, there is enough headroom to grow in the product lines that we are in. We are still not controlling our market with a very large market share or whatever, right? And we would look at, over a period of time, more products to our customers, which in a way could either reduce our cost of operation or somewhere begin to become like an anti-cyclic approach.

But I think with a large balance sheet, we would like to focus on this and remain a leader in this business because we have now learned also how to handle this cyclic issue. I mean it’s not that it’s killing the balance sheet. We have not found it difficult to raise money. Our ratings are not suffering, right? As we do go through this pressure of earnings and once we bring some stability to that with a better mix, right, because it was very loaded towards, let’s say, a tractor or a UV kind of a business. We then added cars to slightly balance it. Then we added commercial people to balance it, then construction equipment then pre-owned vehicle. Now we will also balance it by evening it out geographically. So 2 ways of derisking we will do is to make each product of a certain size and each geography to be of a certain size, then it will start playing the derisking model.

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Abhishek Murarka, IIFL Research – VP [109]

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Sure. Sure. And any capital you would be requiring additionally this year?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [110]

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We would love to raise capital, and we pray that the market conditions improve fast for us to be able to do that. With this kind of growth rate, what will we do for more capital, we will have to wait and see.

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Operator [111]

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The next question is from the line of Shweta Daptardar from Prabhudas Lilladher.

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Shweta Daptardar, Prabhudas Lilladher Pvt Ltd., Research Division – Research Analyst [112]

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Sir, you expressed your optimism on pre-owned vehicle segment, and that also reflects in our increased share mix for the past few quarters now. But if I even look at the competition, most of them have been whining for this particular business segment. So how is the competition flaring up for us? How are we combating it? Is there any specific geographies that we are targeting? And how about the market share vis-à-vis other players?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [113]

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So I will just give out one number and that should explain all your questions. I think we see something like 200,000 customers mature, let’s say, every year, or 30,000 customers mature every year for us who would try to sell their vehicle and buy a new vehicle. So we have got a very strong program now in place to transact for that customer. If I’m a customer of Mahindra Finance wanting to sell my vehicle, then Mahindra Finance will help me to sell the vehicle to whomsoever is wanting to buy, which we will finance. And we will also then look at the customer who’s selling as a customer to buy the next new vehicle. So with one transaction, we are able to get one of our vehicle kind of business. So that’s going to be one approach.

And then you talked about competition. I think if you look at urban center and if you look at using of intermediaries and brokers, then there is enough competition. But we are in the semi-urban rural market, where even today the transaction is between customer to customer. And the broker in-between is just connecting 2 customers and not really owner of acquiring this vehicle and trying to sell like a urban city.

So our participation is being the link between the seller and buyer. And to start with, we want to do this with our existing customers who are in business to sell their vehicle and then buy a new vehicle. And that number itself still is very, very large.

And the third, of course, very clearly is since we have so much of relationship with all the OEMs and the exchange program that they run, when they try to sell their exchanged vehicle, that becomes an additional business volume, which we will try to process.

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Shweta Daptardar, Prabhudas Lilladher Pvt Ltd., Research Division – Research Analyst [114]

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Sure. Sure. Secondly, how about the car segment? What percentage of your car segment is led by aggregators? Because due to COVID-related outbreak, there would have been large labor exporters, right, which is you highlighted. What percentage of the car portfolio would be aggregated?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [115]

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(inaudible) you are in this call. You can answer this question. Ola, Uber, Zoom, redi-GO together will be what? 8%, 10%, I don’t know.

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Unidentified Company Representative, [116]

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Of the total cost, Ola is 10%. So we have 2 million customers. So roughly 80,000 to 90,000 customers will be aggregated.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [117]

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So 8%, 9% will be aggregated models, and not all concentrated in just Mumbai and the Bangalore. They are widespread across various cities.

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Operator [118]

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(Operator Instructions) The next question is from the line of Gurpreet Arora from Aviva Insurance.

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Gurpreet Arora, [119]

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Sir, do you think the 3-month moratorium is sufficient for your customer set? And related question to this is when you say 75% of your customers have taken moratorium, have all 75% taken full 3-month moratorium? Or is there a variation? That’s one.

Second question is why have you not taken moratorium from banks? And last question is how far are we away from 2% OpEx to asset ratio, which you have highlighted earlier?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [120]

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You are the smartest of the question raisers because they said you have to come back in the queue, you raised all questions together.

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Gurpreet Arora, [121]

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I hope to get the answers also, sir.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [122]

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Okay. So let me answer the OpEx thing first. 2% that we are aiming at is really a dream and a stretch. And we believe that — and last time also I said that it’s not all overnight. But then a year or 2, we will work hard towards that. But to some extent, asset growth also has to help us in that. If asset continues to decline, I think the cost will look to be the same or steeper.

So — and as I outlined, the 5, 6 initiatives or area where we are looking at, when we get the full benefit of the technology interventions, digital use, I think the cost for sure will come down. When we get the benefit of cross-selling that we are planning to do for pre-owned vehicle of existing customers and create more customers, that will bring down the cost for sure.

So I think 2%, we would continue to remain focused. And you will see at every stage, there is a decline in cost visible, which will give directionally to reach that 2%, right? So that’s for sure. What was your second question? I’m sorry, this was one.

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Gurpreet Arora, [123]

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Sir, the first question was that — I mean is the 3-month moratorium period sufficient for your customers?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [124]

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So my personal opinion on this is moratorium should not be the approach to customer at all because there will always be a share of cultural change in customers’ mindset to reap it. So in fact, we — even as an association, we are pushing the regulator to look at rescheduling as a possibility so that you really look at the need of a customer, and it could be very different for different customers, right?

So is moratorium 3 months good enough for commercial vehicle? Definitely not. For tractor, more than adequate, right? So I think do we all believe that on 31st of May, the moratorium period ends and from 1st June, everybody is going to repay on time? I want to tell you that, that’s never going to be a reality. It will take people another 60 days, maybe 90 days or whatever.

So from the point of view, 90 days is insufficient, but moratorium is definitely not the answer. Rather give more time by rescheduling the customer and understand his real need rather than putting this habit of not to pay types. Because if somebody takes another 3-month moratorium when he starts to earn, he will still not come and start to repay. But if you reschedule somebody’s account, you will actually look at when he is likely to start to earn and you will give him only a 45-day moratorium. In some cases, you may even give a 120-day moratorium. So the short answer is 90 is not good enough, but moratorium definitely is not the answer.

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Gurpreet Arora, [125]

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And sir, why have you not taken moratorium on your bank loan?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [126]

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No. So we have sufficient funds or cash flow situation to be able to repay our liability. So therefore, we don’t feel it’s necessary to take moratorium. We would rather raise fresh loans which could come to you at a new rate. If you take moratorium, you are extending the same loan, which could be contracted earlier at a higher rate. So you get 2 benefits: One is you repay on time and maintain your track record. Second is you raise fresh loan at a new rate rather than recasting the whole loan at the old rate.

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Operator [127]

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The next question is from the line of Anish Jobalia from Banyan Capital.

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Anish Jobalia, Banyan Capital Advisors Private Limited – Senior Research Analyst [128]

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So I just wanted to quiz on the tractor segment, where you say that you’re seeing a lot of traction. So my question is what are the growth — what is driving this? Whether this demand that you are seeing is temporary or perennial? And whether this demand is across the geographies?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [129]

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So across the geography or not, it may not be all states, but relevant major states are showing the demand, whether it’s UP, whether it’s Punjab, MP, parts of Maharashtra, parts of Rajasthan. I think clearly, we are seeing relevant states are showing the demand. And it’s at the back of the rabi crop being good and the kharif expected to be good after monsoon. So it’s farm driven and I said somewhere in-between. We still don’t see haulage application or a contracting segment buying tractor big time yet. But definitely, the farmer community is buying, so based on good harvest now and expected good harvest the next season.

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Anish Jobalia, Banyan Capital Advisors Private Limited – Senior Research Analyst [130]

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And the second question is, if I can, I just wanted your view on the housing product. Just some comments around that would be very helpful.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [131]

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Housing? Sorry, some comments on what?

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Anish Jobalia, Banyan Capital Advisors Private Limited – Senior Research Analyst [132]

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I mean your housing subsidiary…

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [133]

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Yes, yes, yes. So housing subsidiary, in fact, even in one of the earlier calls, we have mentioned that, I think — I don’t know if Anuj Mehra, the CEO, is in this call. But we had consciously decided to go slow on disbursement and more focus on recovery because that was one area of concern and largely cost from Maharashtra and our assets were also really concentrated in Maharashtra.

As we speak now, we were like Mahindra Finance, even in housing, we were seeing substantial improvement commencing to happen in the fourth quarter and then we hit this unfortunate time. And they have also taken a view to make a higher provision in order to be better covered. We do believe that with the monsoons being good and the harvest, this round has been good. Once Maharashtra opens up, we would see corrections beginning to happen even in the housing business.

We are now looking at opportunities of growth in states which are in green zones. And they have been able to source funds from NHB under the refinancing route, et cetera. So you will start seeing some growth beginning to happen there, but the focus will continue to remain in bringing down the net NPA to even lower than where they are. Maybe another 2% to start with will be the first benchmark pattern. And that we believe will happen as Maharashtra opens up post this COVID lock order.

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Operator [134]

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The next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund.

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Vivek Ramakrishnan, [135]

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I think one after another, my questions got answered especially the one subject that — asked the question that I had. But since I got the chance, is it time for you to look at product adjacencies that you might have been considering, possibly even start buying out portfolio from other NBFCs who will be struggling for liabilities and will not have the strength that you have? And just this one question, sir.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [136]

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When you say adjacency, what product comes to your mind quickly?

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Vivek Ramakrishnan, [137]

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Sir, like for example, you mentioned microfinance, and you’re very well in rural. In 2-wheeler finance, for example, a lot of their customers are going back there buying — maybe buying scooters and so on, so those kind of areas. Or is it in buying somebody’s performing portfolio?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [138]

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So 2-wheeler is something that we will look at because for 2, 3 reasons. One is we ourselves have put — starting to put together a strategy for how to get into 2-wheelers because we did see large number of our own dealer relationships are also in 2-wheeler business, and we did see that as one possible opportunity. In this round, we do see 2-wheeler bounce back as the next best possibility. And third is you are right, that our own existing customers, all of them have a 2-wheeler. And we do believe that they may be the ones who may look for adding more 2 wheelers to their family, if they all believe to travel alone. So I think 2-wheeler is something that we would look at.

Microfinance is something which long back, we had gone deeper to understand whether we should or we should not. If at all we get into microfinance, we would rather create a vertical to get in and become of a size rather than trying to buy some small portfolio. And if at all we have to do some portfolio, we would rather look at refinancing some microfinance NBFC but nothing of that type at this stage.

So any business that is not in our road map for growth or as a strategy, we would rather not look at them. And the 2-wheeler comes within the vehicle family, and therefore — and a lot of ecosystem support available. So we may look at that as a possibility.

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Operator [139]

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Ladies and gentlemen, due to time constraint, we take the last question from the line of Subramanian Iyer from Morgan Stanley.

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Subramanian Iyer, Morgan Stanley, Research Division – Equity Analyst [140]

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A couple of questions from my side. So one is what was the loss of business case in the month of March from a collection perspective given that the lockdown started pretty late in the month? And the second question is what are the outcomes that you’re budgeting from a collection efficiency perspective in the coming months? And if I can maybe — okay, I have 1 more question but maybe after these 2.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [141]

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Okay. So the number of days that we lost when look at it from the lockdown time to the month end, it would have been 12, 13 days. But the beginning of this problem had already come in. So I think in terms of active days lost in March would have been at least 15, 18 days, if not more. And that’s very substantial from a March perspective given normally things starts to shape up from 10, 12 and most towards 25, 28 for things to settle down. So that — maybe about 15 or 20 days is what we lost in March. That is very clearly.

In terms of efficiency, as I said, April, our expectations are 0, but we had about 10-odd percent, 14% of whatever collection. This month, we do expect that, that would be going beyond 20%, 30%. And then gradually, I think each month, it would add about 5%, 10% before we can say it has at least reached about 70%, 80% by September, October and so on.

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Subramanian Iyer, Morgan Stanley, Research Division – Equity Analyst [142]

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Got it. And the last question is just more of a number question. When I look at your IRAC Stage 3 provisions, the implied coverage works out to about 37% and your Stage 3 coverage for the Ind AS is about 31%. So what does it imply exactly in the sense that does it mean that these loans are quite aged because the IRAC provisioning is well over 33%, which is generally — it is — basically, these assets are a year or 2?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [143]

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So I know technically, Rajesh can answer better. But in Ind AS, what it really reflects is that we don’t expect the loss to be higher than this is what we cover under Ind AS. For sure, we’re looking at both historic as well as way forward.

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Rajesh Vasudevan, Mahindra & Mahindra Financial Services Limited – VP of Accounts [144]

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Yes. On the IRAC, you compare the total provision. I think the NPA provisioning, which is not correct. The Stage 2 provisions are quite higher in India. So when you see it, you have to compare total. Even the RBI says you have to compare at a total level and not at a stable level. So we have…

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [145]

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In fact, IRAC gradually moves from Stage 1, 2 to 3 whereas in the Ind AS, it comes to Stage 3. 1 and 2 is not recognized for calculating the coverage.

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Rajesh Vasudevan, Mahindra & Mahindra Financial Services Limited – VP of Accounts [146]

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So as the standard asset requires only 0.4% of…

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited – VP of Treasury & Corporate Affairs [147]

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So if you see on a total level, we are more — the provision under Ind AS is more than direct. And we have not created an impairment reso as required under the new guidance they have issued on March 30.

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Subramanian Iyer, Morgan Stanley, Research Division – Equity Analyst [148]

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Yes. The point on the total coverage is taken. My question was more from a perspective that — sir, I was a bit surprised that even under Stage 3, your IRAC provisioning is…

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [149]

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They are 2 different methods, right? There is — with the aging, you increase your provision under IRAC, whereas under Ind AS, it’s a common rate, what we apply to all of it.

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Operator [150]

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I now hand the conference over to Mr. Abhijit Tibrewal for closing comments.

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Abhijit Tibrewal, ICICI Securities Limited, Research Division – Research Analyst [151]

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Thanks, Steven. Many thanks for the Mahindra Finance management and all the call participants for a very vibrant discussion today. Have a great evening. Thank you all.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited – Vice-Chairman, MD & Member of the Group Executive Board [152]

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Thank you.

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Operator [153]

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Ladies and gentlemen, on behalf of ICICI Securities Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.

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