HLFL in talks to raise up to $100 million to support growth: Sachin Pillai

"A full-fledged turnaround should be in place by the end of the last quarter or spilling over to the next FY," said Sachin Pillai, Managing Director & Chief Executive Officer, HLFL

Hinduja Leyland Finance Ltd (HLFL), the financing arm of Ashok Leyland, is planning for primary capital infusion of $100 million. Sachin Pillai, Managing Director & Chief Executive Officer, HLFL spoke to T E Narasimhan on why the company's attempt to list is being delayed and how the Covid-19 and recent RBI's decisions are impacting the company and NBFC.

RBI has come up with steps for the restructuring of loans. So, what happens to any customer affected by Covid-19? From the customer side how are they responding?

The announcement to extend one-time restructuring is a welcome move. Having gone through Moratorium 1.0 & 2.0 & the unlock happening in various phases – the process of revival of the economy has got initiated. While certain segments are bouncing back quite rapidly, there are segments that will take time to recover. At this juncture, “a one fits all” approach might prove inappropriate. Therefore, with this window for one-time restructuring, it will enable financial institutions to identify customers/segments that need further forbearance/support to recover & work out a selective but overall well-calibrated approach.

From the customer side – it is still early days as most financial institutions are in the process of finalising their restructuring policy & taking it to their board for approval.

What will be the impact of moratorium and restructuring in HLF books?

Given our business model construct, we have never had any asset-liability mismatch situation. We have not relied on short term instruments like Commercial Papers for. In fact, in 2019-20, we had NIL commercial paper outstanding. Neither we availed any moratorium from banks and financial institutions we borrowed, nor had we requested it. In fact, we were surplus on liquidity in April/May of this year, which we had parked as fixed deposits with banks.

On restructuring like other financial institutions, we are in the process of finalising our approach and taking to our board. Given the recovery we are witnessing on the ground, reflecting in higher collection efficiencies & the current liquidity situation (systemic), we don’t foresee any impact.

How is the demand now?

In the vehicle financing space, it’s been a mixed bag in terms of recovery. Demand remained stable in the tractor segment largely on account of a good Rabi harvest in April/May, good monsoons resulting in record Kharif sowing across, and the fact that the country's rural part has remained mostly unaffected. Demand for two-wheelers have picked up since July, and this segment has witnessed a 90% recovery to pre-COVID levels.

We see a similar trend in three-wheelers, small commercial vehicles. In the commercial vehicle segment, while the used vehicle business is picking up – the traction on new vehicles is still moving at a sluggish pace. The intermediate commercial vehicle segment & tipper segments are certainly appearing to improve & might lead the recovery in this space. There has been not much traction in Q1 as well as with the moratorium in place-growth has been flattish for us. We were close to Rs.27,000 crores of AUM on July 19, and we have closed July 20 at Rs.27,500 crores.

When are you expecting growth to revive?

We feel at best, and we might see growth coming back earliest by the end of the last quarter or getting spilled over to the next FY. From a commercial vehicle perspective, it means we will by then see 10 straight quarters of degrowth – if not anything, there will be a good pent-up of replacement demand, which we feel will lead to a strong growth trajectory with a double-digit growth thereon.

A full-fledged turnaround should be in place by the end of the last quarter or spilling over to the next FY.

How HLF is planning to de-risk itself from future shocks?

We have successfully diversified our business over the period. From being a complete vehicle finance franchise, we have now brought down the vehicle finance concentration to less than 60 per cent and going further. We are looking at diversifying further in the non-vehicle finance space and increasing our presence in building up a fee-based franchise in the overall commercial vehicle eco-system.

What happened to your IPO plans? What will be your fundraising plans?

While we have attempted to list the company in the past, however, for reasons beyond our control (crisis post-IL&FS/DHFL), we didn’t go ahead post the approval of the DRHP. Given our parentage & group lineage – growth was never compromised for want of capital. We have been growing our assets under management at a CAGR of 33 per cent over the past 5 years. At present, our overall Capital Adequacy is at a healthy 18 per cent.

Every year we do our long-term planning exercise in February, as per the current plan we will be looking forward for a primary capital infusion of $100 million for growth. The stated intent for us is to list the company, which we will at an appropriate time going forward. In the meanwhile, we have in the past have had infusions through private equity and we will be open to explore the same and we have been in the past well-capitalized by our parent & group. The philosophy remains the same that growth will not be compromised for want of capital, ever.

We intend to list the company and we will be on the lookout for an opportune window post Covid-19 for us to do so.