The Hindu Business Line : Rise in car sales augurs well for Kotak Mahindra Prime

Mumbai, June 15 Kotak Mahindra Prime Ltd (KMPL) is banking on improving car sales and a slew of new car launches to grow its topline by around 30 per cent in FY10 after adverse market conditions impacted business in FY09. To fund the growth in the current financial year, the standalone car financing company plans to raise Rs 3,000 crore, most of it from banks.

“After last year’s roller-coaster ride, whereby car sales slumped in the September-October-November period, business is now looking up. We have budgeted for a 30 per cent topline growth as there has been an improvement in car sales in the last few months and new launches are also in the pipeline. However, we expect our bottomline, which grew by 57 per cent to Rs 157 crore in FY09, to be flattish,” said Mr Sumit Bali, CEO, KMPL.

Emphasising that his non-banking finance company, a wholly owned subsidiary of Kotak Mahindra Bank, was as competitive as banks were in the car financing space, Mr Bali explained that though interest rates charged by KMPL were a tad higher (25-50 basis points) vis-À-vis banks, the former’s customers enjoyed prompt and efficient service, including fast-track loan approvals, from a dedicated team of 400 professionals specialising in car finance across the country.

“We work on thin spreads, four per cent thereabouts. With consumer behaviour – some prone to litigation, some not inclined to pay instalments, etc - varying across geographies, car finance is not an easy business to be in,” he said.

In FY10, KMPL expects to finance around Rs 2,800 crore for new car purchase and Rs 1,300 crore for used cars. According to Ms Suman Sidana, Senior Vice-President, KMPL, in keeping with the business requirements, the company will raise around Rs 3,000 crore in the current financial year. With banks being flush with liquidity, the company has been able to raise working capital loans at 7-8 per cent.

With repossession of vehicles from defaulting customers turning out to be a long-drawn out affair, sometimes taking as much as six months (as against two months earlier) between issuing a recovery notice to taking possession of the asset, which now requires a court order, the non-banking finance company has tightened its credit appraisal procedures, according to Mr Bali.

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