‘We are in talks to raise $100 mn’
Hinduja Leyland Finance (HLF), the financing arm of Ashok Leyland, is planning a primary capital infusion of $100 million. SACHIN PILLAI, managing director and chief executive officer of the firm, spoke to T E Narasimhan on why the firm’s attempt to list has been delayed and how Covid-19 and recent decisions of the Reserve Bank of India (RBI) are impacting the company. Edited excerpts:
RBI has come up with guidelines for one-time restructuring of loans. What happens to a customer affected by Covid-19?
The announcement to extend one-time restructuring is welcome. While certain segments are bouncing back quite rapidly, there are some that will take time to recover. At this juncture, a one-size-fits-all approach might prove inappropriate. This window will enable financial institutions to identify customers/segments that need further support.
From the customer side — it is still early days, as most financial institutions are finalising their restructuring policy.
What will the impact of moratorium and restructuring be on HLF’S books?
Given our business model, we have never had any asset-liability mismatch. We have not relied on short-term instruments like commercial papers. In fact, in 2019-20, we had no commercial paper outstanding. We also did not avail of moratorium. In fact, we were surplus on liquidity in
April and May, and we parked the funds in fixed deposits.
On restructuring, we are finalising our approach. Given the recovery we are witnessing, reflected in higher collection efficiencies and the current liquidity, we don’t foresee any impact.
How is the demand?
In terms of recovery, it’s been a mixed bag in the vehicle financing space. Demand remained stable in the tractor segment thanks to a good rabi harvest in April and May, good monsoons resulting in record kharif sowing, and the fact that rural areas have mostly remained unaffected. Demand for twowheelers picked up from July, and this segment has witnessed 90 per cent recovery.
We see a similar trend in three-wheelers and small commercial vehicles. In the commercial vehicle (CV) segment, while the used-vehicles business is picking up, demand for new ones is still sluggish. The intermediate commercial vehicle and tipper segments are seeing improvement and might lead the recovery in this space.
There has not been much traction in
Q1. We had about ~27,000 crore of assets under management (AUM) in July 2019, and we closed July 2020 at ~27,500 crore.
When are you expecting growth to revive?
We might see growth return earliest by the end of the last quarter of this financial year or the next financial year. For CVS, it means we will by then see 10 consecutive quarters of contraction.
How is HLF planning to derisk from future shocks?
We have successfully diversified. From being a complete vehicle finance franchise, we have now brought this down to less than 60 per cent. We are looking at diversifying further into the non-vehicle finance space and increasing our presence in building up a fee-based franchise in the overall CV ecosystem.
What happened to your IPO plans?
While we have attempted to list in the past, however, for reasons beyond our control, we didn’t go ahead after the approval of the draft red herring prospectus. Given our parentage and group lineage, growth was never compromised for want of capital. We have been growing our AUM at a compound annual growth rate of 33 per cent over the past 5 years. At present, our overall capital adequacy is at a healthy 18 per cent.
Our plan is to look for primary capital infusion of $100 million. The stated intent is to list, which we will do at an appropriate time. We have had infusions in the past through private equity and we will be open to explore this. We will be on the lookout for an opportune window after Covid for us to list.