HOWEVER, ALL OF his plans came to nought when lock-down was announced in the week he was to take charge. His entire attention shifted completely to taking care of the health of his employees.
In the year of the pandemic, the company’s disbursements had dropped to around Rs 1250 crore. The real estate market itself had been rough in the previous couple of years and the scenario looked gloomy. As he is completing five years as the Managing Director of Sundaram Home Finance, the wholly-owned subsidiary of Sundaram Finance, Lakshminarayanan has turned around the company entering into segments and geographies that had not been previously ventured into. His strategy of focusing on small towns in Tamil Nadu and expanding to states such as Rajasthan, Maharashtra and Madhya Pradesh is paying off with the company registering disbursements of Rs 4,588 crore for the nine months that ended in December 2024.
The company provides home loans, plot loans, home improvement & extension loans, loans against property and has just opened its 50 branch. In this interview, LD dwells on the company’s growth segments, drivers and the future outlook.
IE: Since the time you took over, the focus has shifted from the metro and larger cities to tier – 2 and -3 towns in Tamil Nadu. What has been driving the growth in smaller towns?
LD: The market has been growing quite dramatically. While the cities continue to expand, we are seeing faster growth in smaller towns. In addition, the competition from banks has been intense in the metros pushing the housing finance companies to look elsewhere for growth opportunities. We saw tier-2 and -3 towns as an opportunity and expanded our wings to the smaller towns of Tamil Nadu. In fact, we expect the tier-4 towns to be our next pit-stop in our push for growth. Rapid urbanisation, better connectivity, ever improving technology and lifestyle preferences are driving the growth in smaller towns. We see a lot of potential for growth in these towns and will continue to invest here , going forward.
IE: Among the smaller towns in Tamil Nadu, which zones/clusters have seen faster growth?
LD: In the last couple of years, we have registered good disbursements growth in most of the smaller towns in Tamil Nadu with West TN, in particular, growing significantly, driven by the industrialisation and manufacturing expansion in and around the Coimbatore region.
IE: What is the trend among home loan seekers? Are they opting for compact homes or going in for bigger flats?
LD: We have witnessed a changing trend amongst the home loan seekers with the age of the first home loan buyer coming down. This is driving builders to launch new projects at a faster pace. We have also seen a shift towards larger apartment sizes, integrated complexes and plotted projects from a futuristic perspective.
IE: Is the concept of ‘Work from Home’ tapering off? If so, how is it impacting the loan ticket size?
LD: While work from home may be tapering off, the lingering effects of this is still around. Companies continue to have a flexi work model and I think that’s here to stay. The idea for larger space started around the pandemic phase. Both affordability and its benefits has middle-income segments preferring this more.
IE: What is the trend among millennials home ownership?
LD: Millennials are continuously exploring the options very objectively, between owning a house and renting out a residence. While ‘rent an apartment’ model gives the flexibility and allows them to look at multiple options in the future, locking in on a ‘home buy’ decision while the prices are going up is something that they are giving a serious thought. The quantum of investment required and the ease of investing in other financial instruments vs owning a long-term asset in the form of a house is also a debate that is taking place among the millennials. The positive for us as a HFC is that the overall age of home buying and those opting for financing is gradually coming down and it looks like the younger lot are investing in their first homes a lot earlier than those from the previous generation.
IE: How is the funding access? What is the break-up of your funding basket?
LD: The National Housing Bank has always been a pillar of strength for us as an important funding source. Not only have we been getting access to long-term funds, but their funding also serves as a cost-effective source. We have also been enjoying healthy rates on debt funding and bank loans. Deposits have historically been an important part of our funding basket and we continue to value the trust that depositors have placed on us. Each of these contribute to about one-fourth of our total funding requirement.
IE: How has your experience been in financing the affordable housing segment?
LD: The initial work done by us a couple of years ago on market study of customer requirements has served us well and we believe that our product offerings have been well received by the market and the new customer segments. We are seeing traction building steadily and have just crossed Rs. 200 crore in disbursements in the emerging business segment. Also, geographically, we have just branched out of Tamil Nadu into Andhra Pradesh with five new branches and plan to make a foray into Telangana as part of our future growth plans.
IE: What have been the prime drivers of growth in this ‘emerging business’ segment?
LD: Lack of access to formal lending has been a main factor in the demand for credible financing in the small business loans disbursal. This segment of the market remains informal for a large part and hence, it requires an understanding from our side of the customers, their businesses and cash flows. This makes it all the more important for us to have an, on the ground presence and engage in lots of personal conversations with the customers. We see a solid potential to grow the business in this segment and will continue to strengthen our presence in the smaller towns in Tamil Nadu.
IE: What is your outlook for growth
LD: The urban cities have become crowded. High levels of pollution, water scarcity and climate change-related weather patterns are testing the limits. Here is where the smaller towns get to gain – infrastructure development, connectivity to nearby towns, ability to create jobs in local markets and easy access to formal channels of funding will drive growth of these towns. I would say that smaller towns will drive our disbursement growth in the near-to-medium term and to this end, a lot of our future branch expansion will take place in smaller towns, while we continue to consolidate our existing presence in larger cities. It took us 2.5 years to set first 50 branches, we believe that the next 50 will come a lot faster.
