Author: Mitali Mohite

Maruti Suzuki likely to begin mass production of EVs for India in FY26: RC Bhargava

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Maruti Suzuki India will likely begin mass production of electric vehicles (EVs) for the Indian market only in FY26 (April-March 2025-26), said RC Bhargava, Chairman of the country’s largest passenger car maker.

In an exclusive interview with CNBC-TV18, Bhargava said the company’s best-ever sales performance is being driven largely by the sport utility vehicle (SUV) segment as “it will be a while before the entry-level segment revives”.

He does not foresee the need to raise product prices this year given the cost-cut initiatives are working in their favour. However, Bhargava feels it is “futile to try and predict margins in such uncertain times.”

Below are the excerpts of the conversation:

Q: Could you just run us through the performance across segments? Where have you seen the maximum strength, where have you seen pick up and what do you expect for FY25?

A: In the last two years what has been happening is that the SUV segment has been the fastest growing segment. The bulk of our growth has also come from that segment, whether in numbers, topline or profits.

The entry-level segment has not revived, in fact, it has gone down a bit. I think it will take maybe a couple of years more before we see any movement there.

Q: As we start a new financial year, what is your expectation for the SUV segment? Is it expected to remain as strong as it has been last year?

A: The trend will continue this year at least with the SUV segment leading the entire sales of cars in India. I don’t think there is any reason to think that there will be a change in consumer thinking or behaviour regarding what they want in this segment.

As I said the entry-level segment, the small car segment buyers are still not coming back to the car market. Amongst those who buy cars in the more expensive brackets, the sedans fundamentally are losing ground to the SUVs and I don’t see this trend changing.

Q: Could you tell us what Maruti’s plans, and ambitions are on EV side in FY25?

A: FY24-FY25 we are not going to have very much in the way of electric cars at all. The plan is to start production towards the end of this financial year and mass production follows a little bit after the start of production. Also, I believe the commitment is that the bulk of the first lot of production will be exported to Europe. So, the domestic market will get electric cars in numbers from Maruti only after April 2025.

Also Read | Maruti Suzuki will have to offer more discounts, says analyst after Q4 results miss estimates

Q: Commodity prices have moved higher recently, and forecasts show that across the board, commodities will remain pretty strong. Is the market strong enough to take price increases as and when it is required? What’s your sense? Can you improve on these margins? The Street in the fourth quarter was expecting a margin of about 13.5%. Will the direction of travel be in that 13% plus kind of range?

A: It is still not very clear what is going to happen to commodity prices. Some items are going up, but some items are not going up, they are still coming down. What the net result will be, I think you will have to wait a bit longer to see the impact of the Iran-Israel situation, and what happens to China.

If electric car sales continue to fall the world over, the total car market will come down globally. This will mean less demand for various materials and that could also have an impact on material prices. If the Yen continues to weaken against the dollar, it always helps us in terms of material costs. Other factors which are important are that as a company, we have to continue our efforts to reduce costs everywhere.

Also Read | Maruti Suzuki declares dividend of Rs 125 per share, the highest-ever in its history

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

UCO Bank targets 12-14% credit growth in FY25, margin of around 3%

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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UCO Bank is targeting credit growth of around 12-14% and net interest margin (NIM) of 2.9-3.0% for the the current financial year (FY25).

The bank had a good January-March performance with a jump in margin and improvement in asset quality.

Ashwani Kumar, MD & CEO of UCO Bank expects gross non-performing assets (GNPA) at around 2.75% and net NPA of 0.9% in FY25.

Kumar said while the bank is well capitalised, the board has approved a ₹400 crore fundraising to help bring down the government stake in the bank.

“Since our government holding is 95%, to bring it down to 75% we have taken Board approval and after the approval of the AGM, we will go to the market at an opportune time, and in multiple tranches, not at one go,” he said.

Below is the verbatim transcript of the interview:

Q: What are your targets for FY25 when it comes to loan growth when it comes to names, and at the same time when it comes to your asset quality?

A: The target for the current year’s credit growth will be around 12-14%; last year also did a growth of around 16%. So, 12-14% growth target will be there. Net interest margin (NIM), we have given a guidance of 2.90-3% and we will continue with that guidance for this year. We achieved an NIM of 3.12%. Now the NIM will continue to be around 2.9-3%. So far as asset quality is concerned, we have already improved our asset quality to 3.48 from 4.78 last year, and we will try to make it to 2.75 in this year, and net NPA, our endeavour will be to bring it further down from 0.89%.

Q: Two-part question on the asset quality. Slippages ₹476 crore is marginally lower as compared to ₹483 crore last quarter. What is your outlook on slippage going ahead?

A: If you look at our slippages in the year 2022-23, it was around 1.70% over slippage ratio, and this current year our slippage ratio is around 1.10% and our endeavour will be to bring it further down maybe somewhere around 1% slippage ratio in this year and we are targeting upgradation of around 25% of the account which slipped last year.

Q: Slippages, you expect this figure to probably continue. Are you guiding for maybe ₹470-450 odd crore in the next couple of quarters. Will it rise, will it reduce. What is the quarterly run rate?

A: It will be in the same range because the book is also growing, annual percentage will come down and slippages will be in the same range expectedly though we don’t have any large chunky accounts where we expect some slippage, but there are certain agriculture accounts, MSME accounts which are slipping and then getting upgraded also. So, slippages will be in this range.

Q: I wanted your thoughts on your credit deposit ratio. That has increased. What is the number that you would be comfortable with going forward?

A. If you look at our CD ratio, it was around 64% in the last financial year and now it is around 71%. Our endeavor will be to reach 75% CD ratio during this year.

Q: For the fundraise, you have an approval for about ₹400 crores and multiple modes are open to be explored. Could you give us a sense of the time at which you are looking to raise funds? What could be the amount? And what will you be looking at; a QIP or an FPO? 

A. If you look at our CRAR (capital to risk-weighted asset ratio), it is around 17%. As far as the growth part is concerned, the bank does not need further capital raise. But since our government holding is 95%, to bring it down to 75% we have taken Board approval and after the approval of the AGM, then we will go to the market at the opportune time in multiple tranches, not at one go.

For the entire interview, watch the accompanying video

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

LG Balakrishnan trims FY25 revenue target to ₹2,500 crore

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Coimbatore-based LG Balakrishnan and Bros has trimmed its revenue target to ₹2,500 crore for the current financial year (FY25) from ₹2,600-₹2,800 projected earlier.

The blended margin target has also been toned down to 17% from 19-20% targeted earlier.

In an interview with CNBC-TV18, B Vijayakumar, CMD said, the company will strive to achieve a 10% revenue growth run-rate.

The manufacturer of chains, sprockets, and metal parts for cars expects revenue of ₹100-120 crore from its new Nagpur facility by the end of this financial year.

“We will continue to strive towards 10%. We are at 7%. Maybe we will finish 8% or 9%. But the important thing is to maintain the growth and profitability,” he said.

The auto parts maker had a mixed performance in the January-March quarter. Revenue increased by 16%, a much better rate than the single-digit growth in previous three quarters. However, profit margins decreased by 100 basis points from the previous year.

Below is the verbatim transcript of the interview:

Q: After three-quarters of single-digit topline growth, finally, you have reached about 15-16%. But you have spoken about challenges as well in certain places like Europe in the past. So, tell us how is the situation on the ground right now and what kind of growth are you expecting in FY25 on the topline?

A: Expectation is different, we have to achieve a 10% growth every year. So that is what I have always maintained that we will definitely do it and maintain the 10% growth.

Q: By the end of FY24, you hit a 6.5% growth on the topline. Last time you spoke to us, you said that you are lowering your growth rate from 10% to 7%. And you achieved 6.5%. Now going into FY25 you are saying 10% is a realistic target for you?

A: We will continue to strive towards 10%. We are at 7%. Maybe we will finish 8% or 9%. But the important thing is to maintain the growth and profitability.

Q: The number you had given was ₹2600-2,800 crore of revenues by the end of FY25. Would you stick to that target?

A: ₹2,500 crore.

Q: Your facility in Nagpur has been delayed a few times, there was heavy flooding as well, but the street is bracing for that getting commissioned. Has that facility been commissioned because that is the industrial chains unit? Has it got commissioned and for FY25-FY26, what kind of revenues can you get just from the industrial chains?

A: From the industrial chain in the current year, we have started with about ₹60 crore turnover. We will reach about ₹100-120 crore by the end of this year.

Q. This ₹120 crore is included in the ₹2,500 crore of revenue guidance that are giving us?

A. Yes

Q. What does this mean in terms of margins then? You have said in the past that you would like to see margins scale up a little bit. But on a steady state basis on an average for this year? What should it look like?

A. Blended margin we will continue to maintain about 17%.

Q. You had earlier mentioned the margin would be in the band of 19 to 20%. You don’t think that is possible?

A. We have done 19% now but looking at the future I want to factor in the expenditure on the plan for solar energy, the difficulties with shipping to Europe and other places.

Q. Exports as a percentage of your revenues was about 12%. Any plans to take it higher over the next few years?

A. In the last quarter, we reached 16%. So we should go to about 17 or 18%.

Q. You have mentioned in the past that you want the promoter entity to hold 39-40% in the company. Will you be buying from the open market? Will there be a possible buyback where you don’t participate? Could you tell us, is that likely to move up promoter stake move up this year? And will there be a buyback?

A. FY26 we can legally go ahead with a buyback. We have to have a gap of one year. So we expect to complete the preferential allotment by August. And that will allow us to go for a buyback next August.

Q. And will your promoter stake will gradually start moving up towards the 39-40% target?

A. Correct

For the entire interview, watch the accompanying video

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Rooftop solar key to meeting India’s growing energy needs, say experts

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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India’s need for energy is rising because cities are growing quickly, the economy is expanding, and more households are using energy. The increasing use of air conditioners and electric vehicles (EVs) is adding to this demand.

Solar power will be critical in handling this demand surge from homes. Installing solar panels on rooftops could help meet the growing energy needs.

In an interview with CNBC-TV18, Neeraj Kuldeep, Senior Programme Lead at Council on Energy, Environment and Water (CEEW) and Nikhil Nigania, Senior Analyst at Bernstein discussed at length the need to scale up rooftop solar and highlighted the importance of net metering and transmission capex.

They also discussed the challenges and opportunities surrounding EV adoption in India, including the unpredictability of power demand due to EV charging.

In February, Prime Minister Modi launched the PM Surya Ghar: Muft Bijli Yojana with an investment of over ₹75,000 crore for installing solar rooftops for 10 million households.

The solar power scheme seeks to offer 300 units of free electricity every month.

Also Read | PM Modi announces ‘Muft Bijli Yojana’ to provide free electricity to 1 crore households

“The solar energy ambitions were started in 2014 and we have come a long way. But the rooftop solar sector wasn’t picking up well over these last 10 years. The PM Surya Ghar scheme is now trying to provide the necessary impetus that is needed to scale up the success we have seen in the utility-scale. We want to replicate that for rooftop solar as well and have almost 10x growth in the next three years,” Kuldeep noted.

Therefore, from the perspective of reducing dependence on coal, rooftop solar in the residential sector is likely to be quite crucial, he added.

Also Read | PM Modi’s next target is zero electricity bill and wants solar panels in every household

Kuldeep noted that EVs bring unpredictability as it is difficult to gauge when the users will charge their vehicles leading to a sudden spurt in power demand. “So how do we manage that and whether we have the infrastructure there? So that is something we will have to solve as the EV adoption is growing.”

Nigania highlighted the challenges that India currently faces in solar power.

Net metering, for instance, is something which would be critical for the scheme to get implemented because big energy consumption by households typically happens in the evening hours.

‘…the rooftop solar supports the afternoon supply of power; we still need power in the evenings and that is where thermal power companies also come in,” he said.

For the entire discussion, watch the accompanying video

Catch all the latest updates from the stock market here

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Emerging market funds continue to flow into India, albeit at a slower rate, says Cameron Brandt

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Cameron Brandt, Director of Research at EPFR Global, says India is still attracting emerging market fund inflows, but the pace of investment has slowed down.

“We are seeing a rotation in Asia, from India towards Taiwan. It’s not so much a direct rotation. But a definite shift in emphasis,” he noted.

After strong inflow of nearly ₹35,000 crore in March, foreign portfolio investors (FPIs) and foreign institutional investors (FIIs) together net sold equities worth around ₹8,650 crore in April, taking the net inflows so far this calendar year to ₹2,217 crore. 

Another reason for the slowdown in inflows in India, Brandt says, could be that investors are adopting the wait-and-watch approach amid the ongoing elections.

He sees a possibility of momentum returning once the elections are done, and also once people have a clearer idea about how the monsoon season will pan out.

Within the emerging markets universe, he also observes a recovery of interest in Latin America and China to some extent.

Brandt predicts a quiet summer for investment activity unless there’s a significant geopolitical event.

Also Read | Trade Setup for April 30: Nifty Bank on the cusp of a landmark; Can Nifty sustain the recovery?

For more details, watch the accompanying video

Catch all the latest updates from the stock market here

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Shriram Finance sees rural demand aiding double-digit growth in asset base for FY25

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Shriram Finance is targeting a 15% growth in assets under management (AUM) for the current financial year (FY25) helped by a pickup in rural demand in segments like two-wheelers and tractors.

In an interview with CNBC-TV18, Umesh Revankar, Executive Vice Chairman of the non-banking lender said there has been a healthy pickup in demand in states like Uttar Pradesh, Bihar, and Madhya Pradesh.

“The demand for passenger vehicles (PVs) across rural and urban has been good. The rural economy is driving the passenger vehicle demand plus the tractor demand continues to remain reasonably strong,” he noted.

Revankar also highlighted the company’s enhanced ability to extend its reach to more geographical areas for providing loans to micro, small, and medium enterprises (MSMEs).

Below is the verbatim transcript of the interview:

Q: Will you be able to continue these growth rates into FY25 or will we see a bit of a moderation? The asset under management (AUM) growth for the full year was 21%. What should we expect in FY25?

A: We had given a guidance of 15% last year, and we grew a little better because of better economic conditions and higher ticket size. And that may not be the case this year. Therefore, the year-on-year (YoY) increase may not be as high. Also, the election being there for the first two months and the economy to some extent dependent on government capex and government machinery not being there will also have some slowdown impact in the first two months. So, the first quarter can be a little slower, then probably it will pick up.

Overall, we would like to give guidance of 15% and probably, if the economy is doing very strongly in the second half of the year, we should be able to grow a little better than that.

Q: So, 15% is your disbursement guidance for the full year, for FY25?

A: AUM growth.

Also Read | Shriram Finance Q4 results: Net profit rises 49%, net interest income 20% up

Q: Can you tell us about rural markets, how much of a recovery have you seen so far, at what stage of the rural segment recovery are we at and what is the outlook going forward?

A: We are quite positively surprised because rural economies have been doing very well. Overall credit growth in the system itself was 20%. So, we had a good demand for tractors and especially for two wheelers. For two-wheelers, demand and growth for us is around 30% year on year, especially in the rural market, when I say a rural market, more around agricultural dependent economies like Uttar Pradesh (UP), Bihar, Madhya Pradesh (MP).  We expect the rural economy to continue to do well. And also, this year, the monsoon prediction being normal or abnormal, it will augur well for us in the rural area.

Q: When you talk about AUM growth, which is the segment that you think can drive the AUM growth? Will it largely come from the two-wheeler segment, the rural-focused areas? Can you give us a segment-wise break-up?

A: The demand for passenger vehicles (PVs) across rural and urban has been good. One is good demand from tourism, and the rural economy doing well. Good road network, there is a good demand across the rural market for both two-wheeler plus normal passenger vehicle. So, the rural economy is driving the passenger vehicle demand plus the tractor demand continues to remain reasonably strong. MSME is another one area where we have used the cross-selling part it; in the sense, that we had two different business entities in the past when vehicle finance was in focus and another one is non-vehicle especially MSME focused. Now, since we have a combined branch network, an integration has done well for our business, and we are able to reach out with the MSME loan to more geography therefore the MSME growth also has been good. So MSME and passenger vehicles including two-wheelers will drive the growth for the next full year.

Q: Give us a few more numbers. The net interest margin (NIM) came at the highest we have seen in multiple quarters, it’s a two-year high. So, what is the outlook on NIMs and the RoA as well are holding at around 3.1%? So that’s an improvement on a YoY as well as on a sequential basis. What’s the guidance out there?

A: We are able to hold on to NIM growth mainly because of the mix. We were able to sell high-yielding products like gold loans, two-wheelers and MSMEs, which are a little higher yielding than the commercial vehicle loans and that gave us a better mix and better net interest margin. And also, we have managed our liability side very well. Our incremental increase in cost on the liability side has been lower compared to any peers. So, YoY the overall liability cost has gone up by only 20 basis points and which we were able to pass it on to the customers. So overall, good product mix and better management of the liability side, we were able to have a better margin and that has reflected in our RoA also.

Also Read | Shriram Finance announces final dividend of ₹15 per share, record date set for Aug 28

For the entire interview, watch the accompanying video

Catch all the latest updates from the stock market here

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

HCLTech CEO: FY25 guidance factors in ongoing slow discretionary spending

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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HCLTech ended close to 6% down today as the IT services company’s January-March 2024 earnings and the growth guidance for the current financial year (FY25) left the Street disappointed.

The revenues were in line with three estimates, but the margins contracted.  The company guided for 3-5% FY25 growth, which was below expectations.

HCLTech MD and CEO, C Vijayakumar, said the guidance factors in the same pace of discretionary spending slowdown as seen last year leading to the marginally lower than expected guidance.

“The external environment and the amount of discretionary runoff that happened in FY24, we have assumed exactly the same numbers for this year and 3-5 is our guidance,” he said in a conversation with CNBC-TV18 post earnings.

Prateek Aggarwal, CFO of HCLTech also joined him in the conversation and shed light on the future projections.

These are the edited excerpts:

Q: What is your FY25 guidance and how you will manage to meet the growth targets?

Vijayakumar: The external environment and the amount of discretionary runoff that happened in FY24, we have assumed exactly the same numbers for this year and 3-5 is our guidance.

This is based on what we are seeing in the market, based on the deals that we are participating in, and the pipeline that we have. However, it’s important to remain cognizant of the fact that there is some discretionary runoff that happened all through FY24, and we made the same assumption and it’s a mathematical calculation, which leads us to 3-5% guidance.

Q: You also said there is a 2% negative impact in Q1 (FY25); Q1 revenues will be down 2% because of one large project, which is getting offshored now, and in Q2 there will be an 80 basis points impact due to the State Street JV exit. So, will Q2 also have a negative growth, and will the company bounce back to growth only in Q3 and Q4?

Vijayakumar: If you take Q1 at a 2% decline, HCLTech will still be the fastest growing company year on year (YoY), it will be probably upwards of 5.6-5.7%, which is even higher than our guided range. And even if I assume a 1% growth, we will again be pretty handsome growth, which exceeds our guided range. So actually, our H1, technically from a YoY perspective will be a strong first half. So, HCLTech cannot be compared on a QoQ because in three out of the four quarters, there is seasonality in the business; in December we have a peak and then there is a softness in the January-February-March (JFM) quarter in the software business and Q1 is soft because of YoY contract productivity that kicks in. So, the right way to look at our numbers is YoY and maybe if you really needed to compare then that should be the comparison.

Q: But in Q2, will it be growth, or will it be a decline in your topline?

Vijayakumar: We have done $2.3 billion of booking this quarter, a bulk of which will translate into revenue in Q2, and we remain confident of growth in Q2 and the subsequent quarters, which would nicely help us deliver the market leadership on the growth.

Also Read | HCL Tech Q4: IT giant declares interim dividend of ₹18 per share, net profit at ₹3,986 crore

Q: Your margin guidance stands at 18-19%. Can you explain the math behind that, and your aspiration is to grow margins to 19-20%? When do you get to that?

Aggarwal: In the last two years, FY23 as well as FY24, we have given the guidance of 18-19% and we have delivered exactly the same number 18.2% in both those years. So given the environment that we are currently going through, that is the right range for this period. The aspirational range of 19-20% that we have talked about is a little pushed out right now. But our efforts are always to get back to that pre-COVID kind of range that we talked about.

Q: If you could weigh in on the deal wins and the pipeline? Can you give us the mix between large, small, and midsize? We had Mphasis (on the channel) last week and they spoke about how short bust deals; deals of a smaller size between zero to $10 million, are picking up and that is the highest that they have seen in the last many quarters. So, explain the deal pipeline to us.

Aggarwal: In any quarter or fiscal year, there is a substantial part comprised of small deals, zero to 10 million. We remain focused on all sizes of deals because at the end of the day, the momentum and velocity of those deals determines growth. As of now, going into the new year, we have not assumed any optimism that the environment will get better.

Also Read | HCL Technologies to execute digital transformation for Finnish pharma distributor Oriola Corp

Q: Talk to us about the annual productivity benefits that you are passing on to the clients. Is that more than normal this time? And in your guidance, if you could talk about which geographies, which verticals will do well for you, and which might be a drag?

Vijayakumar: Let me take the geographies and verticals. Our financial services delivered 12% growth when across the industry, most people declined. A lot of this has to do with the big bets that we took in insurance, wealth management, or the hybrid cloud adoption in some of the larger financial services firms, The momentum will continue. But we are coming off a high base. So, to that extent, the financial services will be modest, but tech is going to rebound. We already have enough pipeline, we think tech and telecom will continue to do well.

In addition to the large deal, we have a number of programs in the telecom service provider segment that is going to help us. Retail and CPG will do well and manufacturing and life sciences, maybe will do well in the second half – that is the vertical split. But if you take the geography, the US continues to be a very strong geography for us, even in FY24 when there was a lot of stress in the environment, we grew 6.8% in the US. Europe will be a little soft and that is broadly how I see the environment going forward.

Q: And the annual productivity benefits that you pass on to the client, is it more than normal this time?

Vijayakumar: Actually, in some cases, it is a little more because the automation expectation is generally higher. While most of this is what we are talking about our productivity, which is already in the contract and where we have assumed a certain level of automation will come in as we continue to execute some of the run-the-business kind of programmes. When there is a new deal, that is renewal. In fact, even last quarter we did more than $2.5 billion of renewals and in the renewals of course, there is a lot of emphasis on factoring in the productivity of Gen AI (generative artificial intelligence). But again, when we say productivity of Gen AI, customers are also looking at greater volume getting delivered for the same. In fact, I talked about doing more with less and that is what the theme is, but doing more it is some form of a commitment from the customers, but it will only happen over a period of time. I mean, it does not come on day one. So, with every renewal, we end up getting commitments for significant additional business, it’s more than offset the productivity lever that we pass on to the clients.

For more details, watch the accompanying video

Catch all the latest updates from the stock market here

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

SBI Card wants more of its customers to go for the EMI option

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Costs are rising at SBI Card, one of India’s top five credit card sellers (by market share), and any further increase will be passed on to the customers to protect profit.

Abhijit Chakravorty, MD and CEO of SBI Cards and Payment Services, told CNBC-TV18 that the credit cost may remain at around 7% in the near term. “We closed the year around 11.3% (net interest margin). So, we expect that it should remain around these levels because whatever increase, if it is there, we will be able to pass it on,” he added.

In the case of SBI Card, net interest margin is the difference between the average lending rate and the average cost of funds. The company’s NIM has shrunk 90 basis points to 11.3% in FY24 compared to a year earlier.  

How do credit card companies make money? 

• Fees from cardholders,
• Transaction charges from vendors that accept credit card payments,
• Interest on easy monthly instalments (EMI),
• Higher interest rates from people who roll over their dues over months. This is also called the revolver credit line. 

SBI Card’s Chakravorty wants more customers to convert their dues to EMIs or roll over their payments. “We encourage both and that is why our total interest-earning assets have been growing and, year-on -year, it has grown by 4% and it continues to remain steady at around 62%,” he said.

Source: Kotak Institutional Equities

Revolver credit used to be a lot higher during the pandemic, at 40% in 2020 and 28% the year after. However, since 2022, it has remained roughly around a quarter of all SBI Card’s receivables.

You can watch the video for the full interview. Here’s an edited transcript:

Q: Two-part question. One, the corporate spending, has seen a sharp decline, was it by design, or was it due to demand. Second, the revolver, percentage has finally moved up, even though it’s only around 100 basis points, at around 24%. Where do you see this number headed?

A: Corporate spending is a bit by design. After the Reserve Bank of India (RBI) guidelines in mid-February, we saw there is a compliance requirement on part of the vendors to be onboarded as merchants and till that was happening, we wanted to be on the right side and went slow on that business. During Q1, we will be building up that book again and Q2 onward, we will be back full stream. So, that was definitely by design.

Coming to revolvers, it has improved, and will be a function of the quality of the customers that we have and there is a tendency of the customers to go for EMI best payout rather than continue to revolve over a prolonged period.

So, we encourage both and that is why our total interest-earning assets have been growing and year-on-year (YoY) it has grown by 4%. It continues to be steady at around 62%. Our total interest-bearing book is steady and constant, and the revolver will continue to prevail around this rate.

Q: You don’t see it move up closer to around high 20 because that is a trigger for the stock market perspective. Investors would like to see the revolver contribution moving up.

A: We will be looking at a higher number but if customers prefer to move over to equated monthly instalments (EMIs), we will encourage that also.

Ultimately, it’s the overall interest income that matters to me. My loan book and my interest-bearing assets from my overall receivables should be on a stable path, on an increasing path. Revolver is a mixed part of it, we will be watching it closely.

Also Read | SBI Card results: Q4 net profit surges over 11% to ₹662 crore

Q: What is the share of spend via bill payment service provider (BPSP), that the RBI kind of intervened on earlier, what is the share of that as a percentage of total spending?

A: That will be around 15% because my retail spends constitute the larger share of our spending and we have grown over 25% on the spending YoY. It’s a retail spend which is constant and we will encourage it and build up further.

Q: So corporate spending was about a quarter percent of the total, right? You are saying that this particular segment was about 15%?

A: It will be around 15% all taken together. Largely, it will be back in the coming quarters but as I said the retail spending will continue to be around 80%.

Q: What about credit costs? What should we expect because there has been a bit of stress? Give us some guidance for FY25

A: We have taken corrective actions. We find that our acquisitions over the last year are behaving much better than their peers in the previous years. So, the overall mix is going to improve.

While there will be slightly elevated credit cost for the near-term quarters, but over next year it will taper down and remain above 7%, but will come down from the current levels.

Q: Two questions. One on net interest margins and the other on asset quality. The asset quality pain continues for the longest time. Any update on how things are going to move from here?

A: Asset quality, we saw the stress on the portfolio, which was largely because of the overall ecosystem where the constituents who had taken part from us in the earlier period, went into concurrent borrowings, and they developed various credit lines of, and they somehow have limited capacity to pay.

In the current scenario, the stress is going to remain for some time.

On the margin front, after RBI intervention post November, the cost went up by 20 basis points, but it has regularised and with the rate cuts that were expected not coming in, we see margins remaining stable. Even if there is a marginal increase in the coming quarters, we will be able to pass it on.

For the entire interview, watch the accompanying video

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Mphasis CEO: AI, customer experience, and data modernisation dominate deal pipeline

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Nitin Rakesh, MD & CEO, and Manish Dugar, CFO of Mphasis, spoke with CNBC-TV18 about the company’s deal pipeline and client spending trends.

Rakesh outlined that the majority of deals in the pipeline are concentrated in four key areas.

Firstly, there is a significant emphasis on AI-led operations aimed at infusing advanced technology into both IT and business processes.

Secondly, transforming customer experiences and optimizing contact center operations are pivotal, especially for large banking clients who manage extensive service operations.

Thirdly, there’s a rising demand for data modernisation and data engineering, essential steps for any enterprise looking to implement AI solutions effectively.

Lastly, modernisation across the board is gaining traction, with an increased focus on accelerating cloud and data projects using new technological platforms.

Below is the verbatim transcript of the interview:

Q: All numbers are bang in line – revenues, margins, etc. But deal wins is what I want you to talk about to start. You took about $180 million in new deals, and you described by saying that about 75-80% of this was from new-generation services. So, talk to us a little bit about that and there has also been a little bit of concern whether deal win momentum is starting to slow down a bit, and how this will look in FY25.

Rakesh: For the full year, trailing 12 months (TTM), FY24 over FY23 we had about 5% expansion in total contract value (TCV), all net new. We had a bumper Q1, $700 plus million in deals in that quarter. Obviously, as that happens you rebuild the pipeline through the phases and start converting. So that is one little nuance. We are still consuming a lot of the order books that we sold in the preceding three quarters, in addition to $177 million we sold this quarter. Second, there is an interesting nuance that we have noticed in the last three-four months. The shorter duration, zero to 10 million deals have picked up quite nicely, in fact, on a dollar basis probably the highest we have seen in the last four quarters – that is an early sign for two things, one, some discretionary spending coming in, these are quick bursts deals that convert to revenue very quick and give you, in a year, growth opportunity versus a large deal that is typically a 3-5 year deal and sometimes takes up to 6-12 months to ramp up to. So, that is the nuance that you have to keep in mind as you think about that number per se., we are pretty confident that on a TTM average basis, we will probably revert back to that kind of an average number over the next four quarters as well. Obviously, there will be some lumpiness in some of the larger deals between various quarters of FY25. So, I think that is kind of where we are. We definitely are very pleased with the performance of Q4. It’s a great way to start a new financial year.

Q: Is there a way to guide on the deal wins for FY25?

Rakesh: It’s a little difficult to guide on a quarterly or a full-year basis except that as I mentioned that pipeline is up about 5% on a sequential basis. So that should give you a sense and bulk of the deals in the pipeline are in four major areas. There is a strong focus on artificial intelligence (AI) led ops, which is how do you infuse tech into running operations, both IT and business, customer experience transformation sits right there, and contract centres is a very large focus area for a transformations standpoint right now, especially for large banks because they have some really large operations in that space. We have also seen very big uptick in data modernisation, data engineering deals because that is kind of a precursor to every enterprise trying to implement an AI solution. And finally, I think modernisation is starting to pick up steam because clients are fading out if there is a way for them to accelerate some of their programs around cloud and data using some of these new tech platforms because they can also impact your operating costs and you can reallocate costs from one program to the next. So, necessarily doesn’t require additional funding.

Q: You said smaller and shorter duration deals have picked up, what number was that?

Rakesh: Zero to $10 million; basically, less than $10 million deals.

Q: Is this good news, is this bad news, does it mean that people do not want to commit to larger spends?

Rakesh: I would say, in light of pipeline expansion and large deal expansion in the pipeline, I do not think it is bad news. I think it’s mostly good news because I am reading that as, and we have seen that actually play out in Q4 as well as in the current quarter that gives us the opportunity to see some early signs of quick spend or discretionary spend, which means you do not have to commit to a three year programme; you have got a $10 million funding or a $5 million funding, you want to implement a certain program and you going to get it done in the next 6-9 months or the first phase of the programme. So, it is a combination of a little bit more confidence on the client’s right to take programmes that necessarily do not require a large outlay and by definition, consumption ability for these in the shorter duration is higher. So broadly, for us, at least we are seeing it as a positive.

Q: The pipeline between BFS and non-BFS – how is it looking right now? Where are you seeing the maximum amount of recovery come through in terms of orders?

Dugar: On an overall level pipeline has grown by five percentage points, and especially if I look at the BFS segment, there also we have seen 19% growth. From a contract win perspective, we had called out that this quarter will be a quarter of growth led by BFS and TMT. And as Rakesh mentioned other than the fact that the overall size of the TCV and the pipeline has become bigger, we have also started seeing green shoots in terms of short-term deals and shorter deals, which contribute a lot more to the revenue in the immediate years. So, overall basis, BFS has started showing signs of positive from where we were maybe a couple of quarters back.

Q: On the margin front what is the guidance right now for FY25?

Dugar: On a reported basis, we will be in the range of 14.6% to 16% and given that acquisitions are impacting almost by 1.1 percentage points right now, that translates to a range of 15.7 to 17.1% versus the 15.25% to 16.25% range that we are given for the last year. This is in keeping with our philosophy of margin being in a narrow and stable band while investing for growth with a northward bias as the gains came.

For the entire interview, watch the accompanying video

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Cyient MD says there are delays in client spending but no project cancellations

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Cyient’s Executive Vice Chairman and MD, Krishna Bodanapu, says there are some delays in discretionary spending by clients, but the company has so far not faced any project cancellations.

The Hyderabad-based IT solutions provider reported a 28% sequential growth in profit at ₹197 crore for the January-March quarter.

Bodanapu stated that the company is cautiously forecasting high single-digit revenue growth for the current financial year (FY25).

Read the verbatim transcript of the interview below:

Q: The high single digit growth guidance that you have given out, it has disappointed the street. Can you tell us because your FY24 constant currency revenue growth was around 12.6%, that too missed your own guidance of 13-13.5%? Are we staring at another year where perhaps you could see slower growth than the previous one and what are the big trends looking like now?

A: The guidance that we gave was based on the conditions that we see in the market. In the market, generally in the industries that we are in, calls for this prudence. We did grow 12.5%. Last year, of course, there was an acquisition benefit that was there in that number. But looking at what the market looks like and just being prudent about it, this is the number that we have a line of sight to deliver. Let me be candid about that to say that we have a line of sight to deliver this number. Therefore, it is what we are looking at for the year. Talking about trends, there is a bit of weakness in some sectors, for example, the communication sector has not fully recovered, and you would see that in various results that have come out. The aerospace sector, we had seven quarters of growth, but we had one flat quarter this quarter. But that is expected. We will see some decent growth for next year there. But the big wildcard for us is how the communication sector will recover because having said that there are again some good sectors where we are seeing growth, we have a sector that focuses on sustainability-related industries, that is doing very well, the automotive sector, though small for us, is doing very well. We are well-positioned in the semiconductor sector. But there is still a bit of a challenge in the communication sector, which is about a third of our business. Taking all this into account we think that this is a prudent target for us.

Q: You also said that the conditions in the market call for prudence. Can you just elaborate a little more on that in terms of clients’ spending, how is it now, is it worse off than what we saw 6-8 months ago, are orders getting deferred? You gave us a sectoral view, but any more qualitative views on client spends etc?

A: In general, there is a bit of a delay in some of the spending. The good news is that we still have not seen any cancellations, or we have not seen any stoppage of an existing project or things like that. But it’s a bit sectoral so I will not get into the detail here. But, in general, customers are cautious; customers in the sectors that we operate in are a bit more cautious than they were, say, 6 to 8 months ago. They are still talking about technology deployment, and the capabilities that we do well in the projects that we can support. I would say there was not a mass uncertainty, if I may use that word, but there is definitely a bit of trepidation in certain sectors where people do not necessarily want to make the spend right now or the spend decision. But having said that we are still seeing the conversations leading up to the spending decision and we are quite confident that during the year, of course, assuming that macro remains more or less as it is, during the year we will start the order flow again holding up quite nicely.

Also Read | Cyient Q4 Results | Net profit surges 28.5% over third quarter

Q: We were talking to the TCS CEO earlier and we were talking about the dichotomy, the economy seems to be all the data points, the macro stuff that you spoke about is all looking good and as you were saying, even for TCS, and you were also saying that people are delaying in making those decisions, right? So, I don’t know if you want to address that dichotomy. If you do, please go ahead. But I also want you to address the digital, engineering, and technology (DET) margin. I mean, the guidance for FY25 is 16%. You have laid out aspiration to get to about 18% and 20% over the medium and long term. So, what happens to that, is that still on track?

A: I think that’s an interesting point to bring up – the dichotomy and we are definitely seeing that and some of the dichotomy is also because of the relative nature. If you look at how the economies were coming out of COVID, we were seeing a lot more spending because there was a bit of pent-up or delayed spending from 2020-21 timeframe. So, in that sense in the broader technology sector you do feel a bit of dichotomy. But also, I would say the good news still is there is a lot of technology evolution that is happening, and this technological evolution means that people will have to put in that money, that resource behind implementing the new capabilities, etc, to ride the technology wave. So, in that sense late 2022-2023 we saw some of the pent-up demand. Right now, there is just a bit more stability that is coming in. Most economies are doing reasonably well; in India it is a different story but of course, our client base is not very India-centric, and therefore, the extraordinary growth that we are seeing in India doesn’t necessarily translate to our business. But if we can grow in that high single digits considering what we are seeing right now, it’s a good situation just coming out of, all said and done one or two good years, and therefore, we can see a good trajectory going forward. That also ties into the margin, because our aspiration still remains to be in the 18-20 range, but we have a line of sight, but that also comes as long as we have some good growth because we will have to continue to invest a little bit into making sure that the growth happens, be it around sales, be it around technology development and that is a very important point because a lot of the growth is coming because of evolution in technology. I mean, all of you have heard about generative artificial intelligence (AI) and those kinds of technologies, which also means that we have to put the training and the effort behind us to make sure that we are prepared for that. So that will remain as long as we come back a little bit into the teens for the growth trajectory. And the second thing is, once the shift, which is happening quite a bit of the traditional mechanical data work moving into technology work, because then our investments into some of the things like training, etc, can actually come down a little bit. So that remains, but this is not the year for us to hold back on some of the investments that we will made both from the go-to-market perspective, but also retraining and rescaling people.

Q: Transportation for you is aerospace, which has been doing well, and you have a railway that has been degrowing. I think it’s been under some pressure. So, could you tell us out of this entire mix, how much is coming in from aero, how much is coming in from rail and what have been the growth rates out there and how do you see it shaping up?

A: Aero is the predominant part, it is about 80%, but rail, we have been degrowing, we have some very specific customer issues, but also industry level issues where a significant consolidation is going on in the rail sector. There are a lot of acquisitions that have happened, there is also a lot of divestitures because of the acquisitions in the sense that anti-competitive laws in various countries are kicking in. So, there is just a lot of churn in the rail sector right now. Having said that our aerospace business this year grew 20% year on year compared to last year. So that is great growth for a large part of that business, and we see that continuing into next year; while the Q4 was a bit tepid for the aerospace business, we are seeing that growth is coming back, we won some really good deals that we talked about yesterday also, not just renewables, but significant additions. I spoke about a deal with Airbus on the investor call yesterday, Deutsch Aircraft is a new customer which we also made a press release around and also, we are swaying quite nicely into some of the emerging trends in aerospace like urban air mobility, electric propulsion and so on so forth. So, aerospace will continue, and rail is where we are still a bit wait and watch or cautious because various things are still going on and things have to settle.

Also Read | K Krithivasan of TCS expects margins to sustain at current levels

For the entire interview, watch the accompanying video

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow