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Two-wheeler Finance: The next big wave in Consumer Finance?

Two-wheeler Finance: The next big wave in Consumer Finance?. December 07, 2018. Table of contents. Consumption wave in India Two-wheeler market Two-wheeler finance Two-wheeler finance: Business model & analysis Auction and repo analysis Key risks Into the future.

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Two-wheeler Finance: The next big wave in Consumer Finance?

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  1. Two-wheeler Finance: The next big wave in Consumer Finance? December 07, 2018

  2. Table of contents • Consumption wave in India • Two-wheeler market • Two-wheeler finance • Two-wheeler finance: Business model & analysis • Auction and repo analysis • Key risks • Into the future

  3. Consumption wave in India

  4. India- Compelling growth fundamentals BIG POPULATION, FAST ECONOMY SCOOTING ALONG 1.3Bn / 7.5% The number of two-wheelers sold in India in 2018 20mn YOUNG POPULATION The percentage of population born after 1980. 65% WELL CONNECTED Consumer spending 60% of GDP 776mn Mobile phone users in 2018 481mn Internet users, 2nd largest in worldin Dec 2017 ROAD NETWORK 33 lakh km 2nd largest in world BIG FUTURES 7mn The number of college graduates per year

  5. Levers of growth • Utility: • Two wheeler- a mandatory requirement for entry level jobs • Growth in e-commerce industry fueling 2w sales • Rural demand • Women drivers • Availability of financing • Consumption: • Higher disposable income • Rural demand • Increasing sales of high end bikes • Students (schools and colleges) in urban location • Availability of financing Affordability

  6. 2. Two-wheeler market

  7. Two-wheeler demand (1/2) • Two-wheeler sales has grown at a CAGR of 8% over a period of last 7 years • Healthy double-digit growth in FY2018, highest since FY2011 • Share of East and North has together expanded by 570 basis points • Uttar Pradesh dominates two-wheeler market with 14% sales followed by Maharashtra at 10%

  8. Two-wheeler demand (2/2) • Demand is in 100-125cc which comprises of Scoters such as Activa, Jupiter, Mastero, Access and Dio and Motorcycles such as Splendor, HF Deluxe, Passion, CB Shine, Glamour, CT 100 CC and Platina • Maharashtra, Tamil Nadu, Gujarat and Karnataka contribute to 40% sales in scooter segment Registered women buyers (%) 25% Q1,FY’16 20% FY’15

  9. 3. Two-wheeler finance

  10. Two-wheeler financing market(1/3) % of Organised financing FY16 2W sales and financing trend FY18 2W sales and financing trend

  11. Two-wheeler financing market(2/3) Assumptions

  12. Two-wheeler financing market(3/3) PAN INDIA NBFCs REGIONAL NBFCs Advantage NBFC Up money Amrit NEW ENTRANTS CV FINANCIERS DIVERSIFYING INTO 2W

  13. 4. Two-wheeler finance: Business model & analysis

  14. Two wheeler finance – Building blocks (1/2) • Product characteristics • Compulsive product • Follows point of sale model in line with consumer finance • TAT is a key differentiator for sourcing customers. Fastest to disburse wins the customer • Process • KYC and CIBIL check minimize intentional fraud • Residence stability ensures traceability of the customer. This has emerged as the key credit assessment parameter • Technology driven customer profiling to minimize TAT • Collections heavy model. With increasing competition and lower LTVs the company has to ensure the customer pays at least 5 to 8 EMIs to minimize loss KYC Residence stability Collections Collateral Product characteristics:

  15. Two wheeler finance – Building blocks (2/2)

  16. Unit economics Urban Rural • Dealer margin is constant across players and is marginally higher in metros. Adoption of online platforms for sales will reduce the importance of dealers and bring down the cost • Further penetration of online collections will reduce collections cost • Geotagging of customer residence to reach fast and to reduce cost • Early repossession to reduce loss from sale of assets. Yield Opex Credit cost ROA

  17. Trends in yield and LTV • Growth is a factor of Industry growth as well as higher LTV funding • Funding at higher LTV is a function of increased competition • Decrease in IRR is a function of: • Increased competition in Urban 2w market • Presence concentrated at main dealer outlets • Cos. focussing in urban rather than penetrating deeper in semi-urban or rural geographies • Opportunity at sub-dealer locations, online markets • Opportunity beyond Tier I and Tier II locations

  18. Time series of portfolio performance • Delinquency stabilises between 5 to 8 months after disbursement • Inflection point is observed at 40% to 50% equity contribution

  19. 5. Auction and repo analysis

  20. Auction and repossession THEN NOW

  21. Repossession analysis • As clearly visible in 2011-2013 lines i.e., with increasing repo to sale time difference the loss on sale % increases • However, it also has to be noted that loss on sale % for the same repo to sale time bucket has been on an upward slope. Ex: circulated on the left

  22. 6. Key risks in the sector

  23. Key risks in two wheeler finance

  24. 7. Into the future

  25. Riding the consumer finance wave

  26. Thank You..!! November 2018

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