Shriram City Union Finance : Transcript of Analysts/Institutional Investor Meet/Con. Call

lsHRIRAM City
MONEY WHEN YOU NEED IT MOST
Ref: STEC NSE/BSE 530/2022
The Secretary,	The Manager
BSE Ltd	National Stock Exchange oflndia Ltd
P J Towers,	Exchange Plaza, 5th Floor
Dalal St,	Plot No.C/1, G Block
Mumbai 400 001	Sandra- Kurla Complex Sandra (E)
Mumbai 400 051
Sir,
Ref: ISIN- INE722A01011

April 21, 2022

Scrip Code: BSE- 532498 and NSE- SHRIRAMCIT

Further to our letter STEC NSE/BSE 52112022 dated April II, 2022 and STEC NSE/BSE 523/2022 dated April 15, 2022 regarding intimation of call and audio link of the call with M&G Investments respectively please find enclosed the transcripts of the call.

The above information shall be available at the website of the Companywww.shriramcity.in.

This is an intimation under Regulation 30 read with Schedule III (Part A) (15) (b) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements), Regulations, 2015 as amended from time to time.

We request you to kindly take the above information on record.

Thanking you,

Yours faithfully,

__________Shriram City Union Finance Limited__________

Business Solution Centre,144, Santhome High Road, Mylapore, Chennai- 600 004. Ph: [phone], Fax: [phone]

Regd. Office: 123, Angappa Naicken Street, Chennai- 600 001. Ph: [phone]

E-mail :[e-mail] Website : www.shriramcity.in

Corporate Identification Number (CIN) L65191TN1986PLC012840

TRANSCRIPT OF CALL WITH M/S M&G INVESTMENTS, U.K. ON I2'h APRIL 02022

Participants: Mr. Greg Newman (M&G Investments), Mr. Jai Singh Ponde (Shriram City Union Finance Ltd.)

GN: Maybe we can start with, I would love to hear from your side about the merger- and what you see as the opportunity now going forward as part of, approvals aside, what you see as the opportunities as part of the larger Shriram Finance entity.

JSP: It is a good idea, and I think both Companies and the Group have been working on it for a while now. It's just that the timing turned out to be right round about this time, the end of this Financial Year. It's definitely going to be a huge plus for both Companies as well as the Group, and the resultant unified entity. The obvious advantages would accrue from things like economies of scale, greater reach, there would be some advantage in cost of funds as well. All of that is fairly given, but also there are quite extensive cross-selling opportunities for both Companies as they exist now. There are opportunities for Shriram City to sell SME loans to Shriram Transport's truck owner customers, truck operator customers, and for Shriram Transport to return the favour to Shriram City because a lot of Shriram City's customers also use commercial vehicles as part oftheir businesses. So yes, overall it is definitely going to be a shot in the arm for the unified entity.

GN: Was there any relationship before, because I noticed in one of the slides that talks about how "x" percentage, or like five out of ten customers have product with Shriram, but is that just by coincidence or was there an initiative at the Group level before?

JSP: No, at the moment, I mean before, eventually, I mean the cross-selling and the working together etc. will happen only after the merger because as of now, both the Companies operate independently. What you have read about in the merger presentation is essentially some findings from having done a cross-section of each of the Companies' customer base and realized that say, a Shriram City customer also uses, as I said, commercial vehicles, a Shriram Transport customer also applies for personal loans or housing loans and so on. So that's how we have arrived at it.

GN: So it wasn't necessarily they have a relationship now, they have a relationship with another provider or so ..

JSP: Absolutely. And the other point was that free sharing of data was always a constraint without a formal merger. You know, at best you could have worked on a fee structure or something like that but then it would have still not been a free, as I said, exchange of data, and I think that is going to be the key to a successful merger or the merger itself. Once the merger happens, once the data is shared more freely, it can result into much larger benefits.

GN: Yeah, and from what I understand from my conversation with Mr. Mundra at least was the data you have on your customers is very ... at least within the Shriram Transport Finance, but I assume the culture is similar in terms ofthe borrower is not necessarily salaried or has extensive data, so a lot of it is more informal gathering of more of your proprietary data. Is that the same within the Shriram City Union business?

JSP: Yes, that is how it works for Shriram City as well. A lot of our customers, take for example our SME customers, not too many of them would necessarily be filing Income Tax returns, not too many of them would get their books audited, all of those things. But they would still have a robust mechanism whereby they would record their trades, their everyday business, their requirement of cash, how much credit they are giving out and receiving, and so on. So Shriram City's expertise has been thus far in being able to decipher all of this, understand it, make sense of it and convert it into a transaction.

GN: Makes sense, and that kind of has kept the ... I guess how true, maybe this is a good point to kind of touch upon the other product segments and how much of it really stems from the core, this SME,right? So the other categories than just the same customer but different product, is that how I should think about it? So like the two wheelers or loan against gold, is that stemming from the customer or trying to hit a different customer?

JSP: No, I think at the core of it, the customer type is kind of very similar across products. So let's take it product-by-product. Yes, as you said, SME, a typical SME customer is somebody who props up the local economy, for us typically a trader. A large part of our SME customers are into trade rather than manufacturing. So the typical small-town trader who keeps things going for the local economy, that's the kind of business we finance. Of course, he has to have had a track record. We don't finance startups and so on. But yes, intrinsically, that's the kind of customer we would be interested in. And, when it comes to other products, two wheelers, again, these are people who typically use commuter level bikes, and the bikes form an integral part of either their business or their source of livelihood. So somebody who's a, let's say, a freelance electrician or a carpenter would need the vehicle to move from job to job.

In that sense, it virtually becomes a part of his business, a business asset. So, again, yes, the profile of the customer would largely be similar, except that in SME, you're talking about a different ticket size obviously, versus somebody who is getting a two wheeler financed or is taking a gold loan or whatever from us.

ON: So first let's stick with the SME, I guess. Is that traders and kind of mainly working capital lending?

JSP: Yes, it is. It is structured as monthly amortizing term loans, but yes, the end use is effectively working capital because the borrowers typically use it for things like stocking up before the festival season, or generally adding to the inventory in anticipation of better sales or expansion, that kind of thing. In some cases, of course, it goes into let's say, acquisition of some piece of plant and machinery etc., but given our ticket sizes, generally, our ticket sizes tend to be on the lower side, so more often than not the money is used for working capital.

ON: Do you have any, is it secured against anything?

JSP: Yes, there is hard collateral. We take property collateral from the borrowers. We do ofcourse have a small portion, roughly about a little less than twenty percent of our SME book which is unsecured, but then there the ticket sizes are even smaller, and those are only given out to, in geographies where we are very comfortable with the asset quality etc. But bulk of the SME book is collateralized against property.

ON: And then, in terms of ticket sizes and stuff, the terms, that would be helpful.

JSP: In SME, the average ticket sizes would be between Rupees, if you're familiar with lakhs, then it would be between ten and twelve lakhs approximately.

ON: I could do the conversion later, still a bit confused, but let's keep it to that.

JSP: Ten lakhs would be ten hundred thousand. So that's what, a million, yeah. And in the case of two wheelers, it will be roughly about sixty thousand Rupees. In the case of our other products, let's say gold, gold would be anything between forty five- and sixty thousand Rupees. We have our Used Auto loans, those are ballpark around seventy-, seventy five thousand Rupees. Personal loans would largely be between fifty- and sixty thousand Rupees. So, SME is the only product which has, which is in the region of a million or so Rupees.

ON: Which is predominantly, what makes up most of the book I guess.

JSP: Yes, roughly forty five percent as of December.

ON: And that has been coming down, I guess just as a function of slower growth in that segment or is that a function of new growth in other segments?

JSP: It's actually a mix of both, and again it has been brought about because of what happened after Covid, or just after Covid. So, there were severe casualties amongst the businesses that typically we would finance, so we started going a little slow on financing MSME customers. But the heartening thing now is that the current book that we have -I am talking about the SME book- is almost entirely booked after the first wave got over. So, in terms of health, we expect this to be much more robust, and that gives us hope. So we should start seeing growth from hereon.

GN: So meaning that most of this business was written post first wave, is that what you mean?

JSP: Yes, absolutely.

GN: So it's kind of taking into account, a Covid book.

JSP: That's right.

GN; So that kind of leads me to the next question, the terms, the duration on the asset side.

JSP: The average tenor of an SME loan would be ballpark around between thirty six and thirty eight months as of now. The other products have much shorter tenors.

GN; Do you see a lot of chum in the customers, maybe not so much for SME but for the other products? I am just trying to understand how if the customers tend to be repeat customers like in the transport finance business, they are very much like that -they have a vehicle, the customer ages that vehicle, then sells it and moves to a ten year vehicle, and comes back to Shriram again. So to what extent is the City Finance business like that?

JSP: No exactly. In certain products, yes, you see a higher proportion of repeat business. So for example, SME would be reasonable high, Gold would probably be the highest, gold loans, you would keep getting the same customer over multiple cycles. SME, to an extent, yes, it works, but then, after a while, beyond a point, the customer's requirements probably become too large for Shriram City to be able to cater to them. But we get satisfaction out of the fact that we've helped the customer move up the value chain. So he can probably then borrow from a bank or somebody like that.

GN: So just trying to understand the customer journey, I guess. So before they are Shriram City customers, they tend to either not have financing or maybe they'll get it from the community somehow?

JSP: Absolutely right. That's correct. That's usually how our customers start their journey with us.

GN; And then what would they be paying, is that something you can see? Or is it like a family lender or a town lender?

JSP: Yes, so we have the moneylender concept in India. These moneylenders are very popular with the business communities, despite the fact that they charge a fairly high rate of interest. The ease of doing business with them is probably their greatest attraction. And this ease is born out of the fact that both the borrower and lender know each other. I mean. they are part of the same community or the same locality. But the way these businesses strategize on this is that they try and bring in, just to put figures to this, let's say they would probably bring in ninety percent of their requirement of funds after borrowing from friends, relatives, family and so on, and for ythe balance ten percent they would perhaps approach a moneylender. So even while the interest outgo is high, it is only on a smaller portion of the total requirement, which they can afford to pay. And at the earliest opportunity they close that loan. So Shriram City has kind of moved into that space and we have replaced the moneylenders to an extent.

GN: Then would you say that the mix when Shriram City is involved is more fifty-fifty in terms of what funds they need, or going to the ninety-ten...?

I

JSP: Maybe not fifty-fifty, but it would probably move into .. ,I'll tell you why, because the next cycle that they have expanded now and they wish to add on, maybe one unit has to be made into two or three units, so basically he's buying a new shop or something like that, he comes to us, at that time his requirement would be more and therefore the ninety-ten could become something like seventy-thirty perhaps. But at the heart of it they still try and get their funding requirements fulfilled largely from within the community or within the family or friends. So I mean that there is obviously greater acceptance of borrowing from the organized sector, but they still try and keep it low.

GN: And then on the moneylender side, what rates are we talking about in terms of from what I see at least your kind oftwentyish percent?

JSP: A little less than that because our SME lending rates range from something like eleven percent to about twenty two-twenty three percent- it depends entirely, it has a lot to do with the kind of customer you are dealing with, his track record and so on. But obviously the moneylenders would command a much higher price than that, would charge a much higher price.

GN; Fifty percent plus?

JSP: Quite possible, at least in some geographies.

GN: There is a real incentive to ...

JSP: That's right.

GN: And what would be the reason for not coming straight to you? Is it the size of the loan that they require or is that they haven't quite got the documents, or maybe they are a startup or something?

JSP: I think what's happening now is that with greater awareness of financial products and with the kind of options available to borrowers, I think that has probably started happening a little more now, but a large part ofthe borrower market is still centred around the factors that you mentioned, about the requirement not being very large, ease of doing business being a major factor. You don't want to get into documentation and stuff like that if you can just walk into the moneylender's office and walk out with the funds that you require.

GN: And they'll typically be cash? Is that all cash?

JSP: I think largely, unless they have ... yes, I think that still continues to be the predominant way of doing business there.

GN: And how much of your business, I guess on the SME portion, how much of that is cash?

JSP: None of it. All our disbursements, all our collections are electronic or through the banking system.

GN: Is that changed post demonetization?

JSP: No, it was always like this. There is an element of cash sometimes in collections, but that is more to do with essentially products like two wheelers and gold. So while we disburse everything electronically or through the banking system, at times lower ticket products such as two wheelers, where the repayment could be as little as, say, three and a half thousand or three thousand Rupees a month, the borrower might say "look, I have cash ready with me, and I am already behind by a day or whatever, so please collect it", and we would be happy to do that.

GN: In terms of, I've just kind of looked at the historical growth on the AUM side, and part of it, obviously there's a slowdown and starting now to recover, but part of that I guess '19 was just the economy at large? And then '20 is Covid and then '20 -'21? I look at '18 and maybe 2017 depending on the calendar year end, calendar year versus fiscal year, but essentially you used to grow kind of high teens, twenty percent, and that's come off. So just trying to understand why you think, long term