Mahindra Finance is upbeat about the electric three-wheeler segment, which has been on a roll since the time of the pandemic when the e-commerce boom took off with a bang.
“We are the largest financiers of electric three-wheelers right now and have a firm commitment to this segment,” Ramesh Iyer, Vice-Chairman and Managing Director, Mahindra Finance told Mobility Outlook.
While the purchase of an electric three-wheeler is “a choice that the customer makes”, he added that the important point lay in “to whom you are lending” because repayment is eventually about the buyer’s intent to do so.
“It does not matter to me if someone buys vehicle A or B… I am looking at you as a customer before I make this choice to lend,” said Iyer. While admitting that resale price of electric three-wheelers remained a big unknown, he said this was equally true for vehicles of the past.
“If the product is good and the borrower is conscious of why he is buying it, then it is fine with me,” said Iyer. By the end of the day, the cost of operations in electric three-wheelers “is a great math” because the operator is a daily earner who needs to keep his home budget going.
Extra Funding
Hence, low operating costs means lesser spending and consequently more money for his family’s well-being. All that customers of electric three-wheelers seek is a little more funding since the product is more expensive than its ICE (internal combustion engine) counterpart.
From Iyer’s point of view, this is really no big deal since the finance company only needs to stretch itself a little more to take care of, say 85% of the loan instead of 75% as an example. “My upfront investment does not become very high and the EMI repayment is a lot better,” he explained.
According to him, three-wheeler electric operators are happy with their business viability. “We have had no issues, even while we were hesitant initially, till we saw their daily earnings,” said Iyer. The electric three-wheeler customer is now happy to avail himself of a 42-month tenure instead of five years even though there is a higher loan requirement upfront.
“Even in the occasional cases of default, people should not correlate a non-payment to product failure or cost of the vehicle but need to dig deeper. Most people using an electric three-wheeler are happy with their earnings and cost of operations. Charging anxiety is now a thing of the past as well as accessing finance,” said Iyer.
Positive Sentiments
Moving on, Mahindra Finance continues to be pleased with the way the rural prosperity story is panning out across India. “Overall we feel rural is still doing extremely well and the sentiments are very positive. We measure it by both disbursements and collections efficiency,” he said.
Both parameters have been high in recent months, which means the NPAs are also coming down. There have been concerns about the tractor market but as he put it, this segment started doing very well before entering a flat zone and “we are now seeing a pick up again” because infrastructure activity has opened up.
Tractors used in the contracting segment (putting a trailer, etc) are now seeing better numbers and with the monsoon also having “ended very well with good yield”, sowing is back on track for the following season. The support price for wheat is yet another positive sign, which means the farm cash flow should be fine. “Put all this together and you can see why I am bullish on rural,” said Iyer.
Yet, it is equally apparent that some “very low-end customer segments who were probably dependent on daily cash flow” are taking time to get their house back in order again. On the other hand, “little more stable” cash flow streams like the farming and contract segments as well as tourism/ trading are back on track.
In this backdrop, wondered Iyer, are two-wheeler buyers of the past graduating to a pre-owned vehicle? Similarly, are entry-level car buyers going to the next level by putting a lakh or two more?
Used Cars In Demand
“Keep in mind that entry-level cars are no longer very cheap and still above INR 1 lakh. Perhaps, to some people, putting another INR 1 lakh can give them access to a midsize second-hand car, which today are not very old, are also well maintained and sometimes have extended warranty,” he elaborated.
Mahindra Finance is clearly seeing this shift happening even while it is equally evident that the really low-end customer base is yet to bounce back. “Yet, there are many from that segment graduating to the next level too,” reasoned Iyer.
At Mahindra Finance, pre-owned vehicles are one of the key growth engines and what used to be about 8-10% of the asset portfolio is expected to be 15-20% “as we go along”. The company has already articulated its intent to focus on a host of new areas beyond vehicle financing. “We are clearly on track in terms of adding branches, people, strengthening OEM relationships and will get into prime segments for financing,” he said.
There are concerns about the cost of funds having gone up and this hike cannot be passed on entirely to end-users, which means there will be some margin pressure. Mahindra Finance is trying to counter this with some efficiency.
“Do we need to incur the same cost of operations for this set of customers? Investments in technology and data space will help bring costs down through higher efficiency,” elaborated Iyer.
The company has also identified three industry verticals — auto, engineering and agriculture — to focus on as part of its growth strategy going forward. The lending policy for small and medium-sized enterprises (SMEs) is in place and “through our OEM rapport, we will look at providing working capital support” to those enterprises that need this.
Focusing On SMEs
While reiterating that everything is in place right from people, product and design to technology and policy, Iyer said it was important to be serious about the SME business and “put your courage and willingness into this”. There would be no point adopting a half-hearted approach and this put in perspective why the company had roped in the right talent to pull out all the stops and make things work.
“One of the tasks from the team is to make a list of customers geography-wise that may need money for the future and reach out to them proactively,” he said. Many a time, the SME promoter concerned is still to decide about borrowing from a bank or bringing in his own funds.
“Hence, it is better to reach out and make a connect. Once you decide on the industry, it is a question of rekindling a relationship. My personal belief is that there is enough business available if you have the right relationship,” said Iyer.
As he put it, it would be patently wrong to meet someone and demand business. The better option, instead, would be to convince an entrepreneur that help was on hand. “Customers are looking for a commitment to stay with them in good and bad times. They do not want you to lend when they do not need the money or, likewise, withdraw support when they are in trouble,” elaborated Iyer.
Transparency Is Key
By the end of the day, these people understand the business very well and financials are the only challenge and this is where “you need to take a bet, especially when the industry is showing growth”. He was confident that by doing so, beleaguered SMEs would bounce back strongly.
From Mahindra Finance’s point of view, it would be important to understand an SME’s expansion plans, its backup support from OEMs, track record before COVID and so on. According to Iyer, financing is about taking the right calls and risks. SMEs, he continued, appreciate transparency and long term commitment. It is a long term play “where you need to get it right” and then the sky's the limit.
“SMEs would like us to be around as a financial partner for a long time. They do not want someone to tell them they are doing well now. Do not charge a premium because they are weak or, likewise, do not give concessions likewise to someone who is really good,” said Iyer.
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