ET NowIn a chat with ET Now, Vellayan Subbiah, MD of Cholamandalam Investments Financial Company, said that the company's commercial business continue to do well and they remain bullish over long-term.
ET Now: Chola stock has gained about 70% year-to-date. Clearly, the investor interest and expectations seem very robust. What are your outlook on Chola for FY17 and over next two to three years?
Vellayan Subbiah: Our two primary businesses and commercial vehicles business continue to do well, though this quarter has seen a bit of drop in M&HCV compared to last year. We are still very bullish about the commercial vehicle business. Asset quality has started improving and the market is going to continue to grow for the next two to three years. So we are very bullish about that business. The home equity business has been slight sluggish because we have been a bit cautious on the asset quality side, but my belief is that that business is also going to start turning around in about six months. So we are on a fairly good wicket as we go into this year and the coming years. In addition, we also have the cost of funds that are working in our favour. Overall, it is a fairly good situation for us to be in.
ET Now: What is your view on the cyclical revival? Q1 disbursements in that segment had seen a growth of 28%, is this more like a structural trend or this is more because of replacement?
Vellayan Subbiah: Everybody on the M&HCV side has been talking about how much was replacement led demand. With M&HCV, you might see some demand drop off because of a lack of the replacement demand continuing. But LCVs continue to remain very strong, and despite the drop in overall demand of M&HCV, it will continue to be the growth market for us. The other big growth market is the used business which we are seeing very robust growth in that. We are also seeing good growth in the passenger car and tractor side as well. Given that we do not have a huge dependence on any one of these sectors, that is helping us grow significantly and that is why we are very bullish on outlook.
ET Now: You mentioned that there is going to be a turnaround in home equity business within the next six months to about one year. What are the strategy for this business and the growth outlook going forward?
Vellayan Subbiah: Yes, our business is to give loan against a property for self-occupied residential properties. The people we fund are self-employed non-professionals. They tend to be distributors, retailers, traders, and small manufactures. We do not usually go after like the professional market which would consist of lawyers, doctors, charted accountants so on and so forth. A lot of the small businesses are having stress in terms of their payment cycles and that has caused asset quality issues. we do expect asset quality to start improving in next six months, and we are beginning to see green shoots in that segment.
Right now we are still a bit more cautious on the lending end but as soon as that segment starts to turn around, it will increase our confidence in that business. Overall, I think over the cycle that business is a very strong business to be in. We have had very good ROAs in that business and we continue to see it as a good long-term growth factor for us. It is currently almost Rs 10,000 crores of book and we can see it growing at a fairly steady clip over the cycle over the next four to five years. So it is definitely a business we are very bullish on like I said I think about six months to when we can start kind of pressing the accelerator again on that business.
ET Now: Chola stock has gained about 70% year-to-date. Clearly, the investor interest and expectations seem very robust. What are your outlook on Chola for FY17 and over next two to three years?
Vellayan Subbiah: Our two primary businesses and commercial vehicles business continue to do well, though this quarter has seen a bit of drop in M&HCV compared to last year. We are still very bullish about the commercial vehicle business. Asset quality has started improving and the market is going to continue to grow for the next two to three years. So we are very bullish about that business. The home equity business has been slight sluggish because we have been a bit cautious on the asset quality side, but my belief is that that business is also going to start turning around in about six months. So we are on a fairly good wicket as we go into this year and the coming years. In addition, we also have the cost of funds that are working in our favour. Overall, it is a fairly good situation for us to be in.
ET Now: What is your view on the cyclical revival? Q1 disbursements in that segment had seen a growth of 28%, is this more like a structural trend or this is more because of replacement?
Vellayan Subbiah: Everybody on the M&HCV side has been talking about how much was replacement led demand. With M&HCV, you might see some demand drop off because of a lack of the replacement demand continuing. But LCVs continue to remain very strong, and despite the drop in overall demand of M&HCV, it will continue to be the growth market for us. The other big growth market is the used business which we are seeing very robust growth in that. We are also seeing good growth in the passenger car and tractor side as well. Given that we do not have a huge dependence on any one of these sectors, that is helping us grow significantly and that is why we are very bullish on outlook.
ET Now: You mentioned that there is going to be a turnaround in home equity business within the next six months to about one year. What are the strategy for this business and the growth outlook going forward?
Vellayan Subbiah: Yes, our business is to give loan against a property for self-occupied residential properties. The people we fund are self-employed non-professionals. They tend to be distributors, retailers, traders, and small manufactures. We do not usually go after like the professional market which would consist of lawyers, doctors, charted accountants so on and so forth. A lot of the small businesses are having stress in terms of their payment cycles and that has caused asset quality issues. we do expect asset quality to start improving in next six months, and we are beginning to see green shoots in that segment.
Right now we are still a bit more cautious on the lending end but as soon as that segment starts to turn around, it will increase our confidence in that business. Overall, I think over the cycle that business is a very strong business to be in. We have had very good ROAs in that business and we continue to see it as a good long-term growth factor for us. It is currently almost Rs 10,000 crores of book and we can see it growing at a fairly steady clip over the cycle over the next four to five years. So it is definitely a business we are very bullish on like I said I think about six months to when we can start kind of pressing the accelerator again on that business.
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