Shriram Transport Finance Company Ltd (SRTRANSFIN) Q4 FY22 Earnings Concall Transcript

Shriram Transport Finance Company Ltd  (NSE:SRTRANSFIN) Q4 FY22 Earnings Concall dated Apr. 28, 2022

Corporate Participants:

Umesh Revankar — Vice Chairman & Managing Director

Parag Sharma — Chief Financial Officer & Joint Managing Director

Subramanian Sunder — Joint Managing Director

Analysts:

Rikin Shah — Credit Suisse — Analyst

Vivek Ramakrishnan — DSP Mutual Fund — Analyst

Abhiram Iyer — Deutsche CIB Centre Private Limited — Analyst

Shubhranshu Mishra — Systematix Group — Analyst

Akshay Ashok — Prabhudas Lilladher Pvt. Ltd. — Analyst

Abhijit Tibrewal — Motilal Oswal Financial Services Ltd. — Analyst

Sanket Chheda — B&K Securities India Pvt Ltd — Analyst

Piran Engineer — CLSA — Analyst

Krishnendu Saha — Quantum AMC — Analyst

Nishchint Chawathe — Kotak Securities — Analyst

Oon Jin Chng — HPS Investment Partners — Analyst

Param Subramanian — Macquarie — Analyst

Presentation:

Operator

Good morning, ladies and gentlemen. Welcome to the Shriram Transport Finance Q4 and for the full year FY22 Earnings Conference Call. [Operator Instructions]

I now hand the conference over to Mr. Umesh Revankar, Vice Chairman and Managing Director. Thank you, and over to you, sir.

Umesh Revankar — Vice Chairman & Managing Director

Yeah. Thank you. Good morning, Friends. Good evening to those who joined from western parts of the world. A warm welcome to all of you who have joined this call. Hope all of you are healthy and safe.

Today, we have our JMDs, Joint Managing Directors, Mr. Sudarshan, Mr. Sridharan, Mr. Nilesh, Mr, Sunder, Mr. Parag, along with me. We also have Mr. Sanjay, who is our IR Head.

Let me first start with few economic indicators that impact our business directly and indirectly. The first big positive is the budget of 2022 that focuses on infrastructure. With intention to provide a blueprint to steer Indian economy for high economic growth and sustainable development and to encompass engines of economic transformation, seamless multimodal connectivity and logistic efficiency, and also to achieve USD5 trillion GDP, the Budget 2022 recognizes infrastructure as key cornerstone. The Budget has focused on high impact areas and gave an accelerating capital expenditure cycle by providing a sharp increase in capex outlay by 35.4% to INR7.5 lakh crores for ’22-’23, which is likely to strongly complement infrastructure spend and that it has a direct impact on the CV cycle and construction equipment demand.

However, the elevated inflation trends remains a challenge for our growth ambitions. Wholesale inflation averaged nearly 13% in ’21-’22, more than double the rate of retail inflation. This happens to be highest annual number in three decades. The Consumer Price Index inflation, CPI, jumped to 6.95 in March, mainly on account of costlier food items as against 6.07 in February. It is for third month that retail inflation remained about RBI’s comfort zone. The Government hand has strengthened due to all-time high GST collection. The gross revenue collected in the month of March is INR1,42,095 crores, all time highs, beating earlier report of INR1,40,986 crores collected in the month of January ’22. The revenue for the month of March are 15% higher than the GST revenue in the same month last year. The average monthly gross GST collection for FY ’21-’22 — for last quarter of FY’21-’22 has been INR1.38 lakh crores, against average monthly of INR1.10 lakh crores, INR1.15 lakh crores and INR1.30 lakh crores in the first, second and second and third quarter. This reflects the economic recovery and direction of the growth.

The geopolitical issues, the war in Europe has given opportunity for India on wheat export at highly remunerative returns, much higher than the MSP. And India being the only country at this part of time with bumper wheat crop, is positioned very comfortably in the exports. And the high level price also is highly remunerative for the local farmers. So, majority of the workforce being in the agri and the farm sector, this is quite positive for the large population. However, the continuous high crude price and their domino effect is a challenge, and has a direct impact on WPS and CPI number which I had indicated earlier. It also has impact on the balance of payment.

I would like to highlight certain new amendments and surplus issued by RBI from January 1, 2022. I highlight four of them. One is not for income recognition, asset classification and provisioning, pertaining to advances and clarification regarding upgradation of loan account classified as NPA to standard asset only on full repayment of areas of interest and principal. This is applicable as on 39th, but RBI also had given some leeway after that, but we have already complied with everything, every part of it. Implementation of Core Financial Services solution, which is applicable as on 39, ’24, we are already compliant. Compliance function and roll of CCO, Chief Compliance Officer, there is a one-year time. Since the merger of Shriram Transport and Shriram City Union is in progress we have enough bandwidth and we should be able to either internally or externally identify the right person and before ’23, we should be able to appoint. The skill-based regulation for NBFCs — capital requirement for NBFCs or upper layer, Tier 1 capital of at least 9%, risk-weighted assets, we are already compliant. So most of the initiative of RBI has been complied with.

Now coming to the auto industry, in spite of a shortage that has impacted passenger production and sale for the entire year, the commercial vehicles have been doing very well. Their sales have increased by 18.75% to 2,49,806 units in Q4 2022 against 2,10,356 in Q4 ’21. And they increased by 28.3% compared to 1,94,712 units sold in Q3 2022. For the full-year, it reduced 26% growth to 7,16,566 compared to 5,68,559 units sold in 2021. The heavy and medium commercial vehicle showed positive growth of 16.69% with 93,974 units sale in Q4 against 80,534 units sold in same period previous year, a positive growth of 46.92% as compared to 63,964 units sold in Q3 ’21-’22. And for the full year it registered a growth of 49.72% to 2,20,577 units compared to 1,60,688 units sold in 2021. The LCV numbers also show growth of 20.4% to 1,55,832. units as compared to 1,29,822 units sold in Q4 2021, and a growth of 19.18% as compared to 1,30,048 units sold in Q3 ’21-’22. And for the full year, growth of 16.7% to 4,75,989 compared to 4,07,871 units. Used vehicle demand has been pretty high. And they are — on an average the resale prices have gone up by 20%. On the LCVs, the resale prices are as high as 30%, 35%. On heavy, it is anywhere between 15% to 20%.

Now coming to the fourth quarter and full year performance. The collections have been very good. For the Q1, Q2, Q3 and Q4, the collections have improved over the period from NR91.04 crores in the first quarter, INR99.03 crores in the second, INR101.17 crores in the third, and INR104.28 crores in the fourth quarter. We clocked a disbursement growth of 13.42% of INR16,982 crores against INR14,973 crores in the same period previous year, an increased by 9.64% as compared to INR15,488 crores in Q3, ’21-’22.

Assets under management grew by 8.36% to INR1,27,040 crores as compared to INR1,17,242.83 crores in the previous year, and increased by 1.96% as compared to INR1,24,601.77 crores in Q3, ’21-’22. The net interest income increased by 22.16% to INR2,627.82 crores as against INR2,151.12 crores in the same period previous year, and increased by 10.4% as compared to INR2,387.97 crores in Q3, ’21-’22. And for the full year, the net interest income increased by 14.07% to INR9,316 crores as compared to INR8,167 crores in ’20-’21. The net interest margin was 6.96% against 6.80% in the same period previous year and 6.65% of Q3 of ’21-’22 and for the full year, 6.62% as compared to 6.7% in the previous year. The profit after tax, increased by 43.87% to INR1,086.13 crores in Q4, ’22 compared to INR754.93 crores in Q4 of previous year, and increased by 59.58% as compared to INR80.62 crores in Q3, ’22. The EPS stood at INR101.74 against INR100.97 in the previous year. Gross Stage 3 declined by 133 basis points and net Stage 3 declined by 69 basis point or Q3, ’22 and hence the gross Stage 3 stood at 7.07% compared to 7.06% in the previous year, and 8.40 in Q3, 22. The net Stage 3 stood at 3.67% compared to 4.22% of previous year and 4.36% in Q3, ’22. If you recollect, there was an 80 basis point increase in gross Stage 3 and 47 basis point increase in net Stage 3 due to revised process of NPL classification-based on RBI circular, November 2021. And even though RBI has given time, we have decided to continue with the RBI — as per the RBI circular.

The credit cost for the current quarter stood at 2.03% and for the full year, it stands at 2.68% against 2.48% in the full-year ’20-’21. Our liquidity position now stands at INR17,709 crores against INR17,319 crores in the previous quarter. The Board has suggested us to continue with higher liquidity due to geopolitical issues and also some concerns on rise of COVID cases in certain pockets. The cost-to-income ratio was 20% in this quarter and for the full year, it stood at 19.89% as against 21.20% recorded in the same period previous year, improving further on our principal of frugal management.

We have added 20 new branches, mostly commercial of rural center into branches during this quarter which now stands at 1,854 numbers. And in terms of employee strength, we continue to add more numbers, more employees through business associate method, so that we can onboard new employees by fresh training. The significant increase in economic activity post easing of lockdown by the state government due to COVID-19 resulted in improvement in business operation of the company. As a matter of prudence, during the quarter, Company has written off loans outstanding to INR799.92 crores by utilizing the ECL provision created as management overlay on account of COVID-19. The ECL provision of INR2,052 crores is retained by the company, as on March 31, ’22 towards further management overlay on account of COVID.

The progress on merger, the company has received approval from BSE and NSE under Regulation 37 of SEBI LODR conveying their intrinsic approval to the scheme. As per the direction of Stock Exchange, the company has posted all necessary documents and information pertaining to the scheme on the website of the company. The company has filed a company application seeking direction from the NCLT, Chennai, for convening meeting of shareholders, secured creditors and unsecured creditors. We are waiting for the listing of our application and for hearing by NCLT. Necessary company petition will be filed with NCLT during resolution — after resolutions are passed in shareholders and creditors meeting for the approval of this scheme. The process of getting necessary regulatory approval are underway. All matters, activities in connection with the regulatory approvals are progressing as per the schedule. The scheme is effective upon approval of Honorable National Company Law Tribunal, Chennai, after obtaining its regulatory and statutory approval.

We have made a significant progress on merger front. We have started integrating our systems and processes. The HR integration on back-office and operations have already started. The JMDs who are geographical unit heads are all set to take their responsibility. On the growth outlook, we have targeted a 15% growth for the combined entity, and on standalone basis on the commercial vehicle lending, it would be 12%.

Now I request our CFO, Parag Sharma to take the call, and subsequently Sunder also will join with some accounting numbers. Thank you.

Parag Sharma — Chief Financial Officer & Joint Managing Director

Hello, everyone. On the liabilities, total liabilities as of March, ’22 is INR1,14,487 crores. The composition has slightly changed compared to last year. We have been able to increase our deposit portfolio from INR16,000 to INR21,000 crores now, which has increased from 14.76% to 19.14% now. Share of bank loans has also gone up from 16% to close to 20%, 19.6% now. What is happening is the cost has come down. On the entire liabilities, the cost is now at around 8.14%, down by around 83 basis points compared to last year and quarter-on-quarter also, costs have come down by around 31 basis points. Composition, we have been indicating that 20% of liabilities from each source. We are close to 20% from each source, other than the debt capital market, which is at around 23%. The foreign borrowing, which is ECB loans and bonds is also close to around 20%, and that was the case last year around also. The fund mobilization for the quarter has been good and the incremental cost of fund is down by around 20 basis points. The total funds mobilized in Q4 is close to around INR15,000 crores, including an ECB which we did in January to the extent of INR3,500 crores.

We have mentioned about our liquidity at INR17,000 crore, which is good enough to repay all liabilities for next six months. We have guided that we will bring down this liquidity over a period of time. We will look at Q1 onwards to bring it down slowly. We have a dollar bond maturity in October, which is a substantial amount. We will build up buffers for that, and not dilute our liquidity buffer substantially. It will come down by — instead of six months, maybe come down to five months, and then four months, but we’ll maintained slightly higher liquidity. On the ALM front, all buckets have been positive as in past, and a cumulative surplus up to one year will be INR20,000 crores and up to three years will be around INR26,000 crore. High quality liquid assets is 148.7% against the regulatory requirement of 60% that we have been maintaining from — for last — right from the time the requirement of HQLA came in. It has been always more than 100%.

With this, I hand it over to Sunder for his comments.

Subramanian Sunder — Joint Managing Director

Hi, everyone. On the one-time restructuring, the company had implemented the resolution plans both OTR 1 and OTR 2 to relieve the COVID related stress to 39,410 borrowers amounting to INR1,052 crores, out of which the current outstanding is INR852 crores and 1.61% of the cases are in greater than 90-day period. PD for — on the ECL front, the PD for the Stage 1 is 7.34% as against 7.33% in the December quarter, and for Stage 2 it was 21.72% as against 21.75% in the previous quarter. The LGD was 44.68% as against 45% in December quarter. Then, we are carrying an excess provision over IRAC requirement by INR6,499 crores. And the capital adequacy was strong at 22.97%, out of which Tier 1 was 20.7%.

And, no other data point from my side. Thank you.

Umesh Revankar — Vice Chairman & Managing Director

We can open to question and answer now.

Questions and Answers:

Operator

Thank you. [Operator Instructions] The first question is from the line of Rikin Shah from Credit Suisse. Please go ahead.

Rikin Shah — Credit Suisse — Analyst

Thank you for the opportunity. I have four questions. The first one is on disbursements. Of course, they have been very strong in the last few quarters, but we note that the share of new vehicles in the overall loan mix is now almost half to 5% from 10%, two years ago. So I just wanted to get your insights into — as to when do you see the demand for new vehicles recovering? And if at all the replacement demand could show up in FY’23.

The second question is on the margins. Given that your new paper issuances are still happening around that 7.5% for three-year tenure, do you still expect the incremental funding cost or overall funding cost to kind of move down?

Thirdly, the tax rate seems to have been low around 20% in this quarter, any specific reason for that?

And lastly, fourth, what is the total outstanding amount of ECL GS disbursements that we have made so far? That’s all from me.

Umesh Revankar — Vice Chairman & Managing Director

Yeah, to start with, on the new vehicle. So we had virtually slowed down on lending new vehicle for last three years. When the economic indicators indicated that the market is going to slow down, we had tightened our norms on the new vehicle because in the weakening economic conditions, repayment on the new vehicle, which is high-ticket size, becomes challenging. And because we had slowed down for last three years, the the overall AUM of new vehicle has come down. But if you look at last quarter’s disbursement, we have disbursed more than INR800 crores for new vehicle, which is much higher compared to the previous year of around INR600 crores, INR700 crores in the same quarter. So now onwards, I feel the new vehicle lending will go up or the part of our lending, the demand for new vehicle also picking up. And typically, small operators, they buy new vehicle only when the economic indicators are very good and the used vehicle price go much beyond their comfort. So that’s how the smaller operators get into new vehicle. Otherwise typically, large fleet operators by new vehicle and keep the cycling. So new vehicle lending will definitely increase year-on-year. And on the…

Parag Sharma — Chief Financial Officer & Joint Managing Director

Taxation front, we had a reversal of around INR82 crores on account of yearly arrears provisions which was no longer required. And that gave a benefit for a lower tax in the current quarter. As far as the ECL GS loans are concerned, okay, we don’t have the figure right now. You can contact with Sanjay. He will help you out with the results.

Umesh Revankar — Vice Chairman & Managing Director

On the…

Subramanian Sunder — Joint Managing Director

On the cost of fund, what you’re saying is right. The debt capital market instruments cost can come down, but that component of what incremental funds we are raising is not very significant. We raised only INR2,000 crore in Q4, versus overall borrowing of INR15,000 crores, large mobilization through bank loans, securitization and retail deposit. So that doesn’t have a significant cost implications. Even if it comes down, we will be looking at whether we can bring down costs from other sources also. So it may not have very significant impact, but yes, there will be some cost reduction, which can happen.

Rikin Shah — Credit Suisse — Analyst

Thank you.

Operator

Thank you. The next question is from the line of Shalini Vasanta from DSP Mutual Fund. Please go ahead. Good morning. Hi, this is Vivek Ramakrishnan, here. Congratulations on good performance. My first question is to Umesh, and that’s on the new CV sales. From what we understood the economic indicators were weak and therefore this new CV truck operators could not meet their EMI commitments and so on and so there was a lot of lag. So what do you feel is changing on the ground that gives you hope that the operating efficiency will be higher going forward, and how is the current operating efficiency and ability to pass on fuel price hikes? So that’s the question for Umesh. Other question is for Parag. Congratulations on this good shift to FD. How do you price your FDs? Is it off of a benchmark in terms of SBI rate or something to that, or do you do it as a demand-supply where you kind of attract customers at higher rates and then work on stickiness? Thank you.

Umesh Revankar — Vice Chairman & Managing Director

Yeah. As far as the new vehicle is concerned, we have witnessed some demand coming back on the new vehicle. Mainly because — see, what happens is the vehicle sales are in cycle. If you go back to the last 20 years, you would have seen that the new vehicle sales coming down to a level and as the economy improves or as the availability of these commercial vehicle reduces in the market, then automatically the price rate goes up. See, this happens — this happened in 2012 where — 2010 to ’12 when the new vehicle sales went up significantly in these two years — two, three years. Then again from ’15 to ’17, again, it went up. So, it comes in a cycle. So now I feel the cycle, we have started, and the new vehicle sales has to go up because last four years, the number of vehicles sold has come down. And since Indian economy keeps growing, you need a certain number of vehicle every time when there is a growth. So in that, my estimation is the new vehicle cycle has already started, but because of the other economic issues or reasons, it has not picked up.

And as is rightly put up, the fuel cost or the fuel price, that has an impact on the new vehicles buying, because unless people are confident of passing on to consumer, nobody will buy new vehicles. So right now, I believe, the ability to pass on is there and whatever the increase you’ve seen in the last two months, almost everything is passed down to the end consumer or the shipper is bearing it. None of them have put pressure on the transport operator as of now. I feel that in the recovery stage normally, it gets passed onto the end consumers and therefore the inflation goes up. If the food price is up today, it’s mainly because transportation cost is high, not actually because the food cost at the farm or as the production is high. So it is absorbed by the end consumer. So I feel the new vehicle cycle has already started. And because of some reasons like geopolitical issues and the crude price, it is getting digital delayed, but our next three years, the new vehicle sales should only go up from here. The next question, Parag.

Parag Sharma — Chief Financial Officer & Joint Managing Director

Pricing. Well the pricing, what you’re saying is right. It will be benchmarked to — not strictly to the bank rates because bank rates have gone up, and we have actually reduced our FD rates last year, and not subsequently increased. But we will also factor in the peer group pricing, and then we’ll take a call. As of now what we have done differently is activate the branch network for deposit mobilization. I think more to do with our connect with the customers and then we are able to increase our portfolio. So I think over last one year, the cost has come down, the portfolio cost has come down — from by around 50 basis point. And we do expect some cost reduction further in deposits also.

Vivek Ramakrishnan — DSP Mutual Fund — Analyst

Amazing, sir. Congratulations and all the best. That’s all from my side, sir.

Umesh Revankar — Vice Chairman & Managing Director

Okay.

Operator

Thank you. The next question is from the line of Abhiram Iyer, Deutsche CIB Centre Private Limited. Please go ahead.

Abhiram Iyer — Deutsche CIB Centre Private Limited — Analyst

Hello, sir. Congratulations on good set of results. I just wanted to sort of ask regarding the cash flow for this quarter. From what I can see, the cash has gone down by around INR18 billion, debt has increased by around INR18 billion, and that seems to sort of cover the increase in AUM and the increase in investments. So I just wanted to know regarding the operating income that the company has received. Is there any non-cash component here that we’re missing?

Subramanian Sunder — Joint Managing Director

So maybe — Okay, we will take this question offline because it will involve certain conclusions. So, you can contact Mr. Sanjay. He will will help you out in resolving this.

Abhiram Iyer — Deutsche CIB Centre Private Limited — Analyst

Got it. Sir. And the second thing that I wanted to ask was, the sort of securitization — securitized assets that’s basically the company has been doing pertaining to the AUM has gone down by around 18% year-on-year. Is this because there is less appetite among the banks for securitization right now or is this direct company policy to sort of increase their own balance sheet assets?

Parag Sharma — Chief Financial Officer & Joint Managing Director

See, securitization also, according to the new accounting standard, continues to grow. That has also continued to be on balance sheet on AUM on balance sheet, the assets do count. Appetite wise, I don’t think there is any dearth of lenders’ interest in this instrument. We have been conscious of the fact that it should not be a substantial source of funding to us. It should be at around 20% and not beyond that. Though we do get cost benefit here because of priority sector tag to the portfolio. There has been also RBI on lending for priority sector benefit, which is available to banks, and banks have resorted to all lending on balance sheet rather than doing securitization. But I don’t think there is a demand, which is an issue, it has more to do with our policy of not reaching a particular level of reliance on one particular source.

Abhiram Iyer — Deutsche CIB Centre Private Limited — Analyst

Got it. Sir. Got it. Thank you.

Operator

Thank you. The next question is from the line of Shubhranshu Mishra from Systematix. Please go ahead.

Shubhranshu Mishra — Systematix Group — Analyst

Hi, sir. Good morning. Thank you for the opportunity. Sir, couple of questions on the disbursement and used vehicles. So if you can please put out the number for the number of loans that we disbursed in this quarter. What I’m trying to get at is what’s the total population of commercial vehicles and how much we do on a monthly run rate basis or a quarterly run rate basis in terms of number of loans that were disburse. That is first.

Second is on the used vehicle. We have been speaking about the prices going up. Any specific use cases in used vehicles where the prices have been going up or any variation where the prices have gone up by a bigger number than 20%, sir? If you can speak — again more color on the used vehicle demand across use cases, sir.

Umesh Revankar — Vice Chairman & Managing Director

See, used vehicle prices, if you look at the — some of the vehicles where the recent prices have gone up significantly, are in the SCVs, small commercial vehicle, The small commercial vehicle, even the new vehicle prices have gone up by 35% over the last two years. One is because of the change in the BSVI norms. And second is because of the steel price. So the vehicles like Dost or Ace, that kind of a vehicle, the prices have gone up steeply, and the used vehicle price has also gone up steeply to around 30% there. And even in the ICV vehicles, which is around 9 ton, 8 ton to 9 ton vehicles, whether it’s Eicher or Tata or even Leyland and even BharatBenz, their all prices have gone up by 25% to 30% in new and also in the used. So these are the vehicle where they resell prices are high. The total population of vehicles in India is around 1,10,00,000. You can get from the SIAM, state wise detail on the registered — number of registered vehicles across the country, and that will give you the indication on total used vehicle population in India in commercial vehicle. But if you look at the passenger vehicle passenger, vehicle will be much, much larger. It will be at least 3 to 4 times larger than the the commercial vehicle. And within the passenger vehicle, at least one-third of the passenger vehicle will be used for transportation purpose. So that again, number, we need to capture. And in the tractor, total tractors that has been registered is around 75 lakhs, 70 lakhs to 75 lakhs across the country. So that gives you the total population of the used vehicle in India. Apart from that, you also have a construction equipment, some are registered, some are not registered. The construction equipment which are typically having wheels are registered, but construction equipment without wheels are not registered, so you may not get data through the registration authority. So that is the total size of the used vehicle. And number of vehicle financed by us, I’ll ask Sanjay to get back with you. Sanjay will give you the number.

Shubhranshu Mishra — Systematix Group — Analyst

Sure, sir. Thank you so much.

Operator

Thank you. The next question is from the line of Akshay Ashok from Prabhudas Lilladher. Please go ahead.

Akshay Ashok — Prabhudas Lilladher Pvt. Ltd. — Analyst

Yeah, hi, sir. Congratulations on a strong set of numbers. Sir, I just had a few questions. So what is your strategy regarding this business loans, working capital loans? And then what is your strategy regarding branch openings? Will there be a branch expansion now that the economy is doing well and when the sales are doing well? And what is your strategy regarding core ending, are you planning to enter into core lending agreements with any of your banks to increase your book at quite a fast pace? And even raising funds will become easier due to core lendings. That’s it.

Umesh Revankar — Vice Chairman & Managing Director

See as part of our branch opening strategies, normally, what happens is we have over the last 10 years invested on opening of rural centers, which are no cost branches, where the rents are very low in the rural area. And over the 10 years, these rural centers have been converted into branches. So we are not directly opening any branches now. So whatever the rural center areas where we cross at least 400 or 500 numbers of customers, there we open a branch because for servicing them, we need to have a full-fledged branch once we cross a particular number base. That is the strategy we have. So we have another 775 rural centers. So you can say that these, all these are potential branches.

But since the merger is already announced and we also look at the Shriram City Union branches, and depending upon the the Shriram City Union branches location and the potential growth, some scope for putting the businesses together, we have not opened too many new branches. Right now, whatever we have opened is the rural center commercial. So the — all India, there are around 9,000 potential location, as per our calculation, for doing business. But we need not open in all the places as we are also strengthening our digital play. So some of the business will come through digital mode.

The other question is…

Parag Sharma — Chief Financial Officer & Joint Managing Director

Origination.

Umesh Revankar — Vice Chairman & Managing Director

Co-origination. See, we have been — we have done co-origination in the past. It is not that we have not done. But when the co-origination policy came from RBI, before policy came we have tied up with a few banks, but when the policy came, they did not allow the deposit-taking NBFC for co-origination, which in the last year, they have now allowed, even the deposit-taking NBFC. So this interim period, we have not signed up with any bank. But we are talking to bank. And wherever there is a scope and opportunity where both it helps banks and us, we will — we’re open to — for co-coordination.

Parag Sharma — Chief Financial Officer & Joint Managing Director

Particularly for new vehicles.

Umesh Revankar — Vice Chairman & Managing Director

And mostly for new vehicles look.

Akshay Ashok — Prabhudas Lilladher Pvt. Ltd. — Analyst

Okay, thank you so much.

Umesh Revankar — Vice Chairman & Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.

Abhijit Tibrewal — Motilal Oswal Financial Services Ltd. — Analyst

Yes, sir. Good morning. Thank you for taking my question and congratulations on good set of numbers. Sir, two or three questions. Firstly, I mean if I look at the spreads or rather the exit spreads that we’ve reported in 4Q, I mean they are probably I would say the highest in the last decade. So I mean, just wanted to understand, are there any one-offs in the interest income item potentially from write backs of interest income given that we have seen a very strong improvement in asset quality. So that’s my first question. And what are the sustainable spreads in margins that you are looking for in the next financial year?

The second question is, sir, I mean, congratulations on a very strong improvement in asset quality, but I mean if I do that back of the envelope calculation assuming that P&L credit costs are a combination of your provisions and write-offs, the write-off number looks slightly elevated. So, I mean if you can share what was the quantum of write-offs during the quarter and was there any loans, which were sold to ARCs during the quarter?

And sir, lastly, I mean given that fuel prices are up about 10%, we’re just kind of trying to understand what impact could it have on the collections and demand going ahead. So if you could kind of share your thoughts on these three questions. Thank you.

Subramanian Sunder — Joint Managing Director

On the interest income, there has been some write-backs on account of NPAs coming down from 8.4% to 7.07%. So that is around INR106 crores. So if you exclude that, from an income of — incremental income of IN244 crores, the difference is the actual growth in income in the current quarter. As regards the write-offs, we wrote off INR1,470 crores and we got a credit of INR709 crores from the provisions. The net write-off during the quarter was INR761 crores. So that was the impact on the P&L. And the last question, sir, you’ll take it?

Parag Sharma — Chief Financial Officer & Joint Managing Director

Fuel prices and guidance on margins.

Umesh Revankar — Vice Chairman & Managing Director

See, fuel price going up as long as we are able to pass on to the customer, the numbers are very comfortable. So I don’t think at any point of time, because when you transport any perishables, automatically, it gets passed on to the end consumer, our day-to-day essentials. Only when the industrial goods transportation is there, then there is a long contracts. And most of the contract obligation also has the fuel cost as one of the — what we call parameters for fixing the hiked rates because most of the contracts today are including the fuel price level for a particular level of contractual obligation. So I think it has no impact on the transporters per se. But only thing is the sale of new vehicles will come down whenever there is the viability issue for the transportation. And the demand for the existing vehicle automatically go up and people have to pay the price for the transportation. So I don’t think existing operators will have any kind of challenge as far as the operating is profitable.

Abhijit Tibrewal — Motilal Oswal Financial Services Ltd. — Analyst

Thank you, Umesh sir. Sir, if I may squeeze in just one last follow-up question. I mean, I understand, I mean, contractual obligations will be more pertinent for some of the larger fleet operators, but the customer segment or the clientele that you have, which is the owner, driver kind of a segment, will they also be able to pass on the higher fuel cost to the customers?

That’s one. And sir, I mean, lastly I think given your opening remarks, you had suggested that you’re looking at 15% growth for the combined merged entity and 12% for the CV business. So I mean, just kind of trying to understand, does this projections also include, I mean some of the new product segments that you are kind of looking to enter in FY’23?

Umesh Revankar — Vice Chairman & Managing Director

See, we are not planning to enter into any new product segment in this financial year as a combined entity or on a standalone basis. The increase of 12% is factored in the increase in the unit price, that is vehicle price and equipment prices. That has gone up by 25%, 30%. So replacements, whenever a person buys a new vehicle or a used vehicle as a replacement of existing vehicle, he has to buy a product which is around 25% to 30% more costly. So our ticket rate automatically go up to that extent. So the 12% increase, nearly 50% is the cost — the ticket size that goes up. That helps. And adding of new customer would be 5%, 6% only. So overall 12% can be easily reached.

And as far as the individual small operator is concerned, normally what happens the way transportation segment operates is the large fleet operators have around 20% of their vehicle of the total requirement. They have only 20%. 80%, there is the market vehicle that’s being provided by the agent or broker or individuals. They come in. Now this 80% of the people have an option of plying the vehicle on that particular rate offered by the transporter or not. If they feel it is not remunerative, they not ply the vehicle because not plying the vehicle, they save on the operating cost at least. So automatically what happens, when 80% of the vehicles are supplied, the transporters have to give a viable or the remunerative price to the truckers, even if the 5% of the truckers refuse to transport. Automatically, there is a pressure on the transporter to increase the price. So the individuals are having the option of not plying. That is the biggest strength for them. And automatically, they get a remunerative price. It is not that they are at weak wicket all the time.

Abhijit Tibrewal — Motilal Oswal Financial Services Ltd. — Analyst

Thank you so much, sir. This is very, very useful. Sir, wish you and your team the very best.

Operator

Thank you. The next question is from the line of Sanket Chheda from B&K Securities. Please go ahead.

Sanket Chheda — B&K Securities India Pvt Ltd — Analyst

Yeah, hi, sir. My question was on liquidity. We might have mentioned that we will continue with this liquidity level because earlier we had guided that it will come down in Q3, Q4 with the growth coming in and collection efficiency also improving. So why have we not reduced the liquidity buffer, and maybe why are we saying that we would continue with this level?

Umesh Revankar — Vice Chairman & Managing Director

I think Parag has already answered it, but I would like to repeat it. See, for one quarter, this quarter the Board has suggested because of the geopolitical tension to have liquidity for at least one quarter north. Post that, there are some large maturity, which we would be paying, and automatically the liquidity would be coming down from six months to maybe five months and subsequently to four months. So that’s what we anticipate. And we feel that being very conservative and transition to be smooth from six months, the maturity security, to around three months, which has been the practice earlier.

Sanket Chheda — B&K Securities India Pvt Ltd — Analyst

And sir, on write-off policy, now, this quarter we have realized INR800 crores and still, the COVID polls stands at about INR2,000 crores. So do we expect any accelerated write-offs in the coming quarters also, or now you are comfortable with the Stage 3 that it is right now, the levels at which it is right now?

Umesh Revankar — Vice Chairman & Managing Director

There could be write-off and write back both in this year, because over the one year, we’d like to see how this portfolio, which has been impacted by the COVID will behave, because the portfolio that had impacted negatively in the COVID was mostly the passenger transportation. Passenger transportation was badly hit. And we have identified that, and we have taken action in this quarter. But this full year will be available for us to look into this segment much more keenly and observe and then we will take action accordingly. So there is option for both write-off and write back, both.

Sanket Chheda — B&K Securities India Pvt Ltd — Analyst

And lastly, sir, on growth, our disbursement in seasonally strong Q3, Q4 has improved but not not as meaningfully as we have been witnessing earlier second half. So now heading into say first half of FY’23, which is usually seasonally weak first half, but since we are just coming out of crisis, do we expect a similar momentum of say, Q3, Q4, continuing in the next few quarters as well?

Umesh Revankar — Vice Chairman & Managing Director

See, Q3 — normally the first half and second half is 40-60. That’s how it plays out, because the cycle, the Indian economic cycle is like that. In second half, during the festive period, then you have the summer crop coming, then you have the winter crop coming in the second half. That creates a lot of activity and lot of demand and convention goes up and demand — there is more credit demand. In the first half, normally you have some uncertainty due to the monsoon, and due to heavy monsoon in certain location activity comes down. Even the government spend also comes down in the first half of the year. The government spend normally begins from others and that picks up in the second half. These are all the reasons the second half is always stronger than the first half.

But whether this first half will be much stronger, I feel, still the crude price is going to be creating some doubt in people’s mind. So nobody will rush to buy new vehicle at least for now when every alternate days the fuel price is going up. So unless people see the stability, people won’t buy a new vehicle. So we do not know whether the fuel price will stop at this level or it will keep increasing. And if it keep increasing, whether the consumption level will be same, there is some uncertainty. So the new vehicle demand will be suppressed in the first — at least until the fuel price keep going up.

Sanket Chheda — B&K Securities India Pvt Ltd — Analyst

So I understand that. And in new vehicles anyways we were not being disbursed in. And my question was largely subjective to us that in the second half, we have not been so strong on growth, 2.2% in last quarter and 2% in this quarter. So I am — I was asking rather that this level of disbursement should continue in first and second quarter also, or maybe it could dip from here on since — because seasonally the first half will be there.

Umesh Revankar — Vice Chairman & Managing Director

Q4 to Q1 this year, definitely it will be lesser.

Sanket Chheda — B&K Securities India Pvt Ltd — Analyst

Okay, sir. Got it, got it. Thanks.

Operator

Thank you. The next question is from the line of Piran Engineer from CLSA. Please go ahead.

Piran Engineer — CLSA — Analyst

Yeah, good morning, sir. Congrats on the quarter. Just a couple of pending questions. Firstly, out of the INR1500 crores write-off this quarter, how much was for NPL assets versus the standard asset?

Subramanian Sunder — Joint Managing Director

Out of those INR1,470 crores of write-off, the NPL assets were INR1,216 crores.

Piran Engineer — CLSA — Analyst

Okay. Okay. And sir, secondly out of our 21 lakh customers, how many ballpark would have new to Shriram versus say existing to Shriram, a ballpark mix? And has that mix also changed in the last two, three years?

Umesh Revankar — Vice Chairman & Managing Director

See, typically, if you look at the customer, new to customers — new to Sriram would be around 30% 35%. And 65% of them would be a repeat customer who will be coming back after completing their existing loan. And our customers may even come back after two years after completing the loan. That also keeps happening. So we have a strong customer relationship. So the customer will come back at any point of time. So in the used vehicle market, Sriram is the most popular name. So anyone want to buy — finance a new vehicle, they’re always thinking of Shriram first. So that’s how we have large customer base who keeps coming back. So around 30% of the customer will be new to the business and first time buyer or first time to Shriram.

Piran Engineer — CLSA — Analyst

Okay. Has that ratio changed, sir. In the last two, three years?

Umesh Revankar — Vice Chairman & Managing Director

No it won’t — it has not changed significantly.

Piran Engineer — CLSA — Analyst

Okay. Okay. And sir, just on the broad industry question. Out of there are 80 lakh, 85 lakh CVs in India as per my guess, typical how many get scrapped? Basically how many get off the roads?

Umesh Revankar — Vice Chairman & Managing Director

Our thumb rule, I can say is more than 20 years old vehicle typically get scrapped. And it could be around 3% of the vehicle population that gets scrapped in a year. So that is what, because even I’m looking at the SIAM data. The SIAM data, when you look at, the vehicles that gets scrapped — details are not there in the RTOs. So I can only talk of a thumb rule. I cannot come out with proper statistics or data, but the SIAM can help if at all they have data.

Piran Engineer — CLSA — Analyst

Okay. And that 80 lakhs, 85 lakhs ballpark is correct, right?

Umesh Revankar — Vice Chairman & Managing Director

1,10,00,000 is the vehicle population which are running, which are at least paying tax.

Piran Engineer — CLSA — Analyst

Okay. 1 crores, then. Fine, sir. That’s — [Foreign Speech] sir. That’s all from my end. Thank you and all the best.

Operator

Thank you. The next question is from the line of Krishnendu Saha from Quantum AMC. Please go ahead.

Krishnendu Saha — Quantum AMC — Analyst

Yeah, hi. Can you hear me?

Subramanian Sunder — Joint Managing Director

Yeah.

Krishnendu Saha — Quantum AMC — Analyst

Hello, am I audible? Yeah, just a couple of things to understand. Sir, the LGD is going up from 39% to 40%, 45%, 44%. So yeah, I know we provide on a [Technical Issues] basis, but how do we see that being ahead? If you could throw some light on it.

And our next question is on the yield. Just to understand the yield and the spread of the NIM a little bit better. You said AUM will grew by 12%. The rural AUM is already growing by 12%. it is already 50% plus of the books in the last four quarters, which is a better yielding book. Working capital loan and others have not kicked in to the higher levels before. How do we see the yield of the assets going ahead? And with that, how does the liability profile look, because we have — with the rising interest rates? So how do we see the liability profile going ahead, if you throw some light on that. Thank you.

Umesh Revankar — Vice Chairman & Managing Director

As far as the yield is concerned, we focus on our net interest margin around 7%. And sometimes if the borrowing cost comes down, we pass on some benefit to the customer also because if at all — we feel that there are certain kind of customers need to be given a little concessional rates. So this is on the net interest margin, not exactly on yield. And you are right. In the rural segment you get a higher yield. There is a better opportunity for us to lend at a higher rate. That — as rural expands, we do use that opportunity. But as I was telling you, the focus will be more on net interest margin. So some benefit even in the rural area will be passed on to the customers.

Krishnendu Saha — Quantum AMC — Analyst

Right. So that means, I understand that at least 7%, 7.5% of the NIM could be maintained on a steady basis in the next 1 and 1.5 years, 2 years.

Parag Sharma — Chief Financial Officer & Joint Managing Director

You are right, you are right.

Krishnendu Saha — Quantum AMC — Analyst

What percent…

Subramanian Sunder — Joint Managing Director

On the LGD front, we are currently maintaining 44.65% and the pre-COVID levels was less than 35%. So we hope that maybe in the next couple of years, it will come back to the normalcy once this COVID is behind us. So one-offs and all if you remove, then it should come back to 35% level.

Krishnendu Saha — Quantum AMC — Analyst

35%. And sorry, sir, and if I might ask you, what was the incremental cost of borrowing, sir?

Umesh Revankar — Vice Chairman & Managing Director

Incremental cost of borrowing is around 7.30% to 7.5%

Krishnendu Saha — Quantum AMC — Analyst

And I suppose 80% of our book is fixed, right?

Subramanian Sunder — Joint Managing Director

Yes. 80% of the borrowing rate.

Umesh Revankar — Vice Chairman & Managing Director

Yes.

Krishnendu Saha — Quantum AMC — Analyst

Thanks.

Operator

Thank you. The next question is from the line of Nishchint Chawathe from Kotak Securities. Please go ahead.

Nishchint Chawathe — Kotak Securities — Analyst

Yeah, hi, good morning. Two questions, one is on the liquidity front. Given the new RBI norms are sort of getting implemented in phases, how much scope we really have to run down that excess liquidity on balance sheet?

Parag Sharma — Chief Financial Officer & Joint Managing Director

Nishchint, the HQLA requirement, see, there are certain categories of liquidity, which is — we are maintaining, which is not counted for HQLA, be it bank deposit, be CVLO investment, which are not counted for HQLA. So I don’t think that is going to have — bringing down liquidity will have any impact on HQLA need to maintain higher liquidity. We have sufficient scope, and any which ways, what we are maintaining also is sufficiently high, 148% versus requirement, which can go up to 100%. I don’t think there is any linkage, direct linkage there. So we can bring it down to — if you look at the absolute number, we are at INR17,000 crores, can come down to around INR10,000 crores or maybe slightly less than that. So that is — that has been our policy even in past to maintain three months of liability repayments. That works out to close to around INR8,500 crores to INR9,000 crores range, should be the liquidity and that will still meet the HQLA requirement as per RBI.

Nishchint Chawathe — Kotak Securities — Analyst

You mean three months of gross repayments, right?

Parag Sharma — Chief Financial Officer & Joint Managing Director

Yeah, yeah. This INR8,5000 crores is gross repayments.

Nishchint Chawathe — Kotak Securities — Analyst

Okay. Thank you. The other one was on growth guidance. You mentioned that you’re looking at a 12% in-house growth next year which includes — half of it is price inflation and probably half of it is new customer addition. So I mean are we kind of saying that if product inflation is not high probably in ’24, ’25, then your growth should be somewhere in 6%, 7%, 8%?

Umesh Revankar — Vice Chairman & Managing Director

See, product inflation is already in place because all the vehicle prices have gone up by 20%, 25%. I’m talking about the replacement. A customer who is replacing in next one year, he is going to replace a vehicle which is 25% costlier. So automatically that gets factored in. So it is not a year-on-year increase because already — the vehicle prices have already increased. S0 automatically you get that 5%, 6% growth automatically when the customer buys a replacement vehicle.

Nishchint Chawathe — Kotak Securities — Analyst

So, but the thing is that it may not again go up next year, right. I mean may not go up again 25% in FY’24. So, if I…

Umesh Revankar — Vice Chairman & Managing Director

Please understand, a customer would have purchased the vehicle four years back, and now he has completed the loan and he is buying another vehicle. So four years back the price was low and he is replacing a vehicle which is 30% more. I’m saying that the product price is already up. So whenever a person buys vehicle, he has to buy a vehicle which is 30% or 20% higher. So in the next one year whatever vehicle will be financed will be expensive by 20%, 30%. So automatically, you get 5% to 6% increase.

Nishchint Chawathe — Kotak Securities — Analyst

And if you’re saying should be like an annual phenomenon of 20% rise.

Umesh Revankar — Vice Chairman & Managing Director

It could be for another one year only. It may not be permanent.

Nishchint Chawathe — Kotak Securities — Analyst

So that’s what my point is that, you know what happens after that?

Umesh Revankar — Vice Chairman & Managing Director

After that we– there will be — see, we need to create more reach. The scope is very high. We are less than 30% in used vehicle market. 70% of the market is open. And out of this 70%, 20% is by organized sector like other NBFCs and banks, who are in used vehicle. But nearly 50% of the market is by unorganized players. And that is the market we keep adding in every time.

Nishchint Chawathe — Kotak Securities — Analyst

Because you mentioned that your new customer acquisition is around 5%, 6% next year. So probably what you’re saying is that it can accelerate probably the year — the following year.

Umesh Revankar — Vice Chairman & Managing Director

Yes, it will accelerate. Because of the merger, we will have more reach, we’ll have a large number of — larger number of employees. And because the synergy benefit, we would be able to expand, and growth rate can be much higher.

Nishchint Chawathe — Kotak Securities — Analyst

Sure. And finally, if you could give some update on the merger. In terms of operationally, how things are playing out right now? How are your plans in terms of extracting the synergies working? Some developments versus when we spoke last.

Umesh Revankar — Vice Chairman & Managing Director

Yeah. See, there is a good progress. The pilot branches already started operating. So then, the product introduction will happen in the next stage. And that should happen in a month or two time. Then as far as the leadership is concerned, the leadership is already looking into geographical units. We have made up five geographical units, and the geographical heads, the JMDs are already looking into their respective geography, and that they will take care of the further product introductions and the growth of the business and the synergy. Everything will be looked at by them. So I feel it is in the right progress, operationally. In the back-office and HR integration, it’s almost done. So we exactly know what we need to do in the HR. And as far as the technology integration is concerned, even though we need to keep this platform separately till the legal merger, for all other preparation we are fully ready.

Nishchint Chawathe — Kotak Securities — Analyst

Sure. Thank you.

Operator

Thank you. The next question is from the line of Oon Jin Chng from HPS Investment Partners. Please go ahead.

Oon Jin Chng — HPS Investment Partners — Analyst

Hello, hi. Hi everyone. Thank you for the call. Most of my questions have been answered. I just have a couple of follow-up questions. Just first one on replacement. You mentioned — I just want to get a sense, what is the average digital in your portfolio right now? Do you have a sense as well what is the rate of replacement in this current portfolio? That’s my first question.

Umesh Revankar — Vice Chairman & Managing Director

See, the replacement — when I say replacement, customers keep either adding more number of vehicle or they replace existing vehicle once the loan is completed. So it all depends upon the economic activity. And also sometimes, it also depends upon the new vehicle sales because higher than new vehicle sales, higher churning will be there in the used vehicle. And also this new vehicle will come into the used vehicle market. So the churning can — in the higher economic growth scenario, the churning can be as fast as every two years or three years. Or when economy goes slow, the churning and come down and it can be, every three years or four years or even five years. Now, in the last three, four years if we look at, the new vehicle — many of the people are holding on to the new vehicle up to five to six years. Earlier they would hold a vehicle still only three to four years. So all this is depending upon the economic recovery and demand for the movement of the goods in the economy. So I can’t give you a ballpark number, but it keeps changing depending upon the economic growth of the country.

Oon Jin Chng — HPS Investment Partners — Analyst

Understood. And do you have a sense, I’m not sure you collect this data, but do you have a sense of what the fleet utilization at this moment for your customers or operators? Is there a data that shows what’s the utilization right now?

Umesh Revankar — Vice Chairman & Managing Director

Utilization levels are very high now. In fact there is a shortage of vehicles for some of these segments because as I understand — people say it is because of the heat wave, I’m not very sure. There is a shortage of vehicles and there is a big demand. And in many places, vehicles are not available. So, fleet utilization levels are at a peak now. Even some of the industry bodies have asked me whether I can supply vehicles. I said I’m only a lender. I’m not supplier of vehicle. But there are some aggregators, which are coming in, who are trying to find a way to smooth supplier for vehicle throughout the year, but most of these aggregators are local, not all India level. So I feel right now, the utilization levels are very high and there is a shortage of vehicle in certain pockets. It could be due to high seasonal demand because of the fruits, especially mango and other fruits normally is in the high demand now throughout the country, and also the high wheat movement. Wheat movement in the entire northern belt and central belt, the wheat movement is at the peak now. So because of that. So, right now it is — utilization levels are very high.

Oon Jin Chng — HPS Investment Partners — Analyst

Got it, got it. And I suppose there’s also that lens into the argument that the operators are able to pass on the increased input costs, for example, fuel.

Umesh Revankar — Vice Chairman & Managing Director

Yes, they’re easily able to pass it on now.

Oon Jin Chng — HPS Investment Partners — Analyst

Can I check is well, just to confirm, you mentioned that the increase in vehicle value prices, the used vehicles up to that 25% to 30%, the LTV or the loan has come down below 70%, is that right. Did I hear that right?

Umesh Revankar — Vice Chairman & Managing Director

LTV has been below 70% right from the beginning. We have — beginning the last three years, we tightened the norm. And not because of the increase in value of the vehicle, LTV has been curtailed at less than 70% for last few years, and that is continuing. Even where the vehicle prices have gone up, LTV is maintained at the same level, but not decreased further due to the increase in value the vehicle.

Oon Jin Chng — HPS Investment Partners — Analyst

Understood. My last question is on refinancing. You mentioned that you have the U.S. dollar bond coming due end of this year, which I see is October 2022, USD750 million. What’s your refinancing plan on this?

Parag Sharma — Chief Financial Officer & Joint Managing Director

We will look at all opportunities. Domestic liquidity is good, we are carrying liquidity buffers, we indicated earlier. We will be able to easily meet it. No issues regarding domestic borrowing and dripping this maturity. In case markets are okay, if there is opportunity to borrow offshore, we will look at, at that point of time, but as of now domestic liquidity is good enough and we have sufficient surplus liquidity where we can easily manage this liability. Not an issue at all.

Oon Jin Chng — HPS Investment Partners — Analyst

Got it. Thank you very much. That’s all from me. Congratulations, again, on a good quarter.

Operator

Thank you. The next question is from the line of Param Subramanian from Macquarie. Please go ahead.

Param Subramanian — Macquarie — Analyst

Hi, thank you for the opportunity. So, most of my questions have been answered. Just two from my side. So firstly, on the opex. So if I look at the opex, so it has been rather flattish for the last two years, and of course disbursements and collections have come back from the company. So what is the reason for this considering we already operate a leaner cost-to-income than most? So that’s my first question on opex.

And secondly on AUM growth. If I look at the headline AUM growth number, that’s still hovering around that 8% mark, and you’ve already highlighted how utilization levels are very high, demand is high, freight rates are doing well. So any reason why this headline AUM growth is still at a single-digit sort of level and why you are guiding for still only 12% growth for the next year? Yeah, that’s it from me. Thanks.

Umesh Revankar — Vice Chairman & Managing Director

Yeah, see, first of all we are indication a 12% growth because of the certain uncertainties which is still continuing because of the geopolitical issues and we do not know how long the crude price will remain at present level and whether it will go up further. So we are little circumspect on that aspect. So 12% is something which we feel a comfortable growth for us. And normally we don’t expand business overnight because we recruit, train people and then expand business. We don’t laterally recruit and expand business. So that’s the one reason.

As far as the opex is concerned, we have managed it well for last two, three years trying to be as frugal as possible, but we always give guidance of 22% to 23% on the opex because as business grows, then definitely there will be some other expenses, including the cost of acquisition of new technology, new platform, all those will be there. So with all this into consideration, we give a 22% to 23% guidance.

Param Subramanian — Macquarie — Analyst

Sir, this is cost-to-income or opex growth?

Subramanian Sunder — Joint Managing Director

Yeah, cost-to-income.

Param Subramanian — Macquarie — Analyst

Okay. Okay. Got it. Thanks. That’s it from me.

Operator

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Umesh Revankar, Vice Chairman and Managing Director, for his closing comments.

Umesh Revankar — Vice Chairman & Managing Director

Yeah. Thank you. Thank you for joining. This quarter, we have come out with good set of numbers, and we are hoping that with economic recovery is visible at least in India, and budget being very strong on the infrastructure spend, we are confident that momentum will be maintained throughout the next financial year. And when we meet next time, we’ll again examine [Technical Issues]

Operator

Sir, should I conclude the call? Hello? Ladies and gentlemen…

Parag Sharma — Chief Financial Officer & Joint Managing Director

Hello.

Operator

Yes, sir. Please proceed. Hello? Sir, you’re reconnected.

Umesh Revankar — Vice Chairman & Managing Director

It’s okay now.

Operator

Okay, sir. I’ll conclude the call. Thank you. [Operator Closing Remarks]