The sprawling hall at Anna Arivalayam in the heart of the city was filled to capacity - this time not to witness a wedding or hear a political leader: a large number of aspirants had gathered to realize their dream of acquiring a vehicle of their own.
Shriram Group’s R Thyagarajan referred to the evolution of the Shriram Transport Finance Company over the last 31 years as the largest non-banking finance company that has provided easy finance to over a million aspirants to acquire a vehicle. The asset funded in the current year exceeded Rs. 28,000 crore and the company launched two new initiatives: Shriram One Stop and Shriram Newlook. These facilitate the seller and buyer of used commercial vehicles to meet at one of Shriram’s 500 offices and conclude the deal on the best of terms. The company offers refurbished old trucks of all makes acquired from the market and sold under the brand Shriram Newlook.

It indeed was a New Look

Shriram Automall India Ltd, a subsidiary of STFC, that launched the two new initiatives, displayed a number of Newlook vehicles outside the Hall. These were of different makes of commercial vehicles Ashok Leyland, Eicher, Mahindras, Tata Motors - , tractors, light commercial vehicles, cars… They all did sport a new look and attracted avid buyers.

Launching the Newlook, Tamil Nadu minister for rural industries and animal husbandry, Pongalur N Palanisamy, lauded the company's providing credit to large numbers of aspiring entrepreneurs who did not have access to credit from banks: "such credit is made available to large numbers who lack the wherewithal to access credit from the banks; those who cannot provide sureties and don't have PAN cards." He welcomed the attempt to offer refurbished vehicles: "the New Look is a new and bold concept," he said and suggested the company to focus on repairing the engines and other parts also to ensure reliable and sustained operations. Announcing himself as a customer of the company, the minister also suggested Shriram to offer the services at lower rates of interest and with warranty.

Cine Actor Padmapriya launched the One Stop initiative. In this the customer is provided, through a touch screen, details on the choice of his brand, price, age and other information on vehicles offered for sale across the country.

India's largest asset financing NBFC

Post-2002, STFC has evolved as the largest asset financing NBFC in the country with niche presence in financing pre-owned trucks for small truck operators (STO). STFC is part of the Shriram conglomerate which has significant presence in consumer finance, life insurance, general insurance, housing, engineering, wind energy, construction, stock broking and distribution businesses.

STFC is a leading finance provider for the commercial vehicle industry with sharp focus to provide credit to small truck owners. The company has a customer base exceeding 600,000. It has pan India presence through close to 500 branches, service centres and 55 strategic business units.

The growth of STFC over the last five years has indeed been spectacular: total income increased from Rs. 346 crore in 2004-05 to Rs. 3731 crore in 2008-09; profit after tax shot up in this period from Rs. 49 crore to Rs. 612 crore. The CAGR of income and PAT through the last five years at 81.25 per cent and 87.71 per cent respectively have no parallel among such large companies. This growth is maintained through this year with revenues for the first 9 months April - December 2009 at Rs. 3248 crore and net profit at Rs. 609 crore.

Million new entrepreneurs…

Founded in 1979, STFC identified financing second hand trucks as a niche business. Through these three decades the company developed great expertise in this business putting to use technology and modern management tools. With the skills built in thousands of its employees, STFC dominates this business. While other NBFCs play safe concentrating on selling new vehicles through hire purchase finance, STFC rightly assessed the burning aspiration levels in truck drivers to own a truck. Over the years, it has refined and re-refined business practices designed to fulfill this aspiration and in the process has helped create nearly a million new entrepreneurs.

R Sridhar, a chartered accountant who joined Shriram in 1985, has been heading STFC as its managing director since 2000. His considerable expertise and experience have been used by the industry also: Sridhar is vice president of the Federation of Indian Hire Purchase Association and a Director of Finance Industry Development Council.

Sridhar referred to the role of STFC in triggering a modernisation chain: "the owner of an eight year old truck looks for a 4-5 year old truck in the next stage of evolution of his business; one owning a five year old truck graduates to buying a 2-3 year old truck and such a person develops an ambition to buy a new vehicle. Thus the facility triggers a chain of demand for advancing towards newer vehicles on a continuous basis," said Sridhar.

Phenomenal growth since 2002

The phenomenal growth recorded by STFC began in 2002 when the Citi Group invested in the equity of STFC. In quick time a number of investment companies from Europe and the US, apart from banks and financial institutions in India, impressed by the sound business acumen of the Shriram Group, invested whopping Rs. 3705 crore plus as private equity funds. STFC's assets under management are estimated in the region of Rs. 30,000 crore this year and to double to over Rs. 60,000 crore in the next three years.

Sridhar explained the factors behind the phenomenal growth: "in the truck financing field, STFC is way ahead of others; while the focus of other players is loyalty to a manufacturer and to focus on selling one brand, we are loyal to the customer and strive to provide him the brand he needs."

So far STFC has funded more than a million vehicles. Now the company funds around 4 lakh vehicles a year. Most other players offering new vehicles finance around 20,000 vehicles a year.

When Shriram started operations in 1979, there was no other company in the organized sector that offered to finance old trucks. The reasons are obvious: more risky customers and more risky assets.

Risk vs return…

There are two options for lending: choose a safe customer with low yields with less earnings and less chances for losses; the second is to opt for the more risky transaction of lending to acquire a used truck. The yield can be more. But there is also the greater risk.

Sridhar explained that STFC chose the latter: "we identified the potential for larger earnings in focusing on the unorganized sector. We developed the ambition levels on the part of small truck operators. He is industrious and is keen to own an asset. He has no access to credit from banks at modest rates and thus is willing to pay a higher rate of interest that will cover our risks. Significantly, over a period of time, the STO improves his earnings and graduates to buying a new truck that enables him to access cheaper credit from banks."

Well-integrated services…

The company has perfected the techniques and systems for collecting hire purchase instalments in time. Establishing close rapport with the clients, the company understands his business and offers him a vast variety of related services such as credit for buying tyres, oil and spare parts, provides insurance through the sister company of Shriram General Insurance and ensures quick settlement of claims when needed. The size of operations also helps the company to negotiate with large oil companies to provide rest-room facilities on highways. As minister Palanisamy acknowledged, a sense of belonging to the Shriram Family has been carefully nurtured.

Sridhar said that for all the risks taken by his company in lending to small operators, bad debts are limited to just 2 per cent and the yields are better aound 7 per cent: "we analyse the risk profile, refine the credit quality and take calculated risks. In this process we derive the satisfaction of fulfilling an important, felt need of society to groom thousands of small entrepreneurs," said Sridhar.

There is another upside to this business: while the commercial vehicle industry is cyclical suffering a boom and a slump every 2 or 3 yearsthis, by and large affects the market for new vehicles and not so much the demand for pre-owned vehicles. Large volume of goods had to be moved to meet the needs of a large population. Sridhar said that with the revival seen from October 2009, operators are buying more vehicles, new and old.

Two new subsidiaries…

I noticed STFC integrating its range of activities in an organic and rational manner. It is setting up two new 100 per cent subsidiaries:

* Shriram Equipment Finance will finance mostly construction equipment, an important vertical of the commercial vehicles sector. This business is not new to STFC: the company already has around Rs. 2500 crore of assets in such equipment. Sridhar pointed to the thrust provided for developing the infrastructure sector that would result in increasing demand for construction equipment.

The second trigger for demand for finance from this sector is the vacation of space by large multinationals who have been leaders in this business for long like GE Capital and Citicorp; ICICI, the large Indian player, has also considerably slowed down lending to this sector. Sridhar believes in great potential for lending for construction equipment purchases.
Sridhar pointed to yet another prospect: "many of our trucker clients are emerging as small contractors in the construction business. We reckon this trend of such entrepreneurs diversifying into civil contracts to accelerate. I estimate a business volume of around Rs. 6000 crore in assets in just three years," said Sridhar.

The One Stop wonder…

** Shriram Automall Ltd will further refine the novel truck bazaar concept successfully introduced by the company for bringing sellers and buyers of second hand vehicles together on a more secure platform. Presently this trade is handled through brokers and suffers several weaknesses: "the seller cannot easily meet the buyer; the transaction is not quick nor transparent and price discovery is not efficient. We sell over 1000 vehicles per day; the expertise needed to handle such numbers individually and spread over different towns, is demanding. We need to assess the credit quality and valuation for an estimated transaction of Rs. 50,000 crore we expect to reach in the next couple of years; doing this individually will be difficult. It is not also easy to build and transfer this expertise. Hence we plan to institutionalise and professionalise this activity. We are setting up Automalls in 50 places spread over the country. Each mall will have 1 lakh - 2 lakh sq ft space and located in highways away from cities. We will present all information on the truck offered for sale. A prospective buyer can examine the truck and buy it on terms acceptable to him. We are tying up with truck financiers who have re-possessed vehicles, bring together buyers and sellers and effect sales for a fee. We will check the title, tax payments and the quality of the vehicle and ensure that the deal gets done quickly. We will offer the facility for organized truck operators and individuals," said Sridhar.

From time to time the company has been organizing Truck Bazaars in different towns. These are organized for a day and entails a lot of efforts and expenditure. The Shriram One Stop will be an electronic truck bazaar. The STO may not be net savvy nor familiar with accessing information through a website. One Stop will provide the facility for intranet access through touch screens put up in 500 branches of STFC. Sridhar explained that the truck owner can register his offer: "the buyer can see the photo of the truck in different angles, get information on its age, make, mileage done, registration details, licence… He can specify his required brand, age, price range… Our staff will help get this information through the touch screen. The well-developed software provides quick and easy access to the information on vehicles offered for sale in different towns. Soon this facility will be provided in all the STFC branch offices," said Sridhar.

New Look vehicles will earn from Day One

Under the facility of New Look, the company will make 123 checks on a truck offered for sale, attend to essential repairs and make it presentable. These jobs will be outsourced to workshops in the vicinity. New Look trucks will help the buyer start operations right from the time of his buying it. Thus they will earn for the operator from day one.

Presently such vehicles are offered with no warranty. One may expect Shriram to explore the possibility of offering limited warranty. Perhaps the volume will grow in size to get vehicle manufacturers interested to join hands to work a system to offer refurbished vehicles with warranty for the next 100,000 km or for two years.

The sheer size of operations enables STFC to offer a vast range of allied services like financing and reconditioning of engines, replacement of tyres, bridge loans for insurance…: "we sell around 100,000 tyres a year; lending on these accounts for 5 per cent of our total credit," said Sridhar.

‘Driving Gurukulam’...

As part of the CSR initiatives STFC plans to set up driving schools in association with an NGO. Named Driving Gurukulam, such schools will provide training to school dropouts, build skills and enable them to secure driving licences, initially for LCVs. Such schools will be set up in all regions. In the context of the humungous number of deaths on roads, this service will be of great value. IE has been suggesting large oil companies and vehicle manufacturers to come together to organize such schools all over the country. They can ride on the experience of Shriram Group to expand this.

Hygienic rest rooms…

The health of this company lies in the health of the increasing numbers of its driver-owner clientele. STFC plans to provide truck drivers facilities for resting in hygienic conditions on the highways. Apart from providing shelter facilities for taking bath, for looking after the safety of vehicle and goods and offering food at modest prices. STFC is working with large oil companies like BPCL and Reliance to set up such facilities along the highways. Sridhar added: "we will provide user cards like credit cards that can help the operator earn points for using such facility and redeem these to further avail the facilities. The provider of the facility, the oil company, will have the opportunity to sell diesel, engine oil and other accessories, food… Truck operators spend around Rs. 500 crore per month on diesel alone," pointed out Sridhar.

The large clientele also offers enormous scope for insurance. Most of the business goes to Shriram General Insurance and some to Bajaj Allianz. Shriram Life Insurance also offers a special policy for truck operators: the credit shield policy offers the family of an insurer the facility of no payment of the balance instalments due and to transfer the property to the family if he died during the currency of the policy. The company also ensures quick and fair settlement of the claims that will help a truck damaged in an accident to become productive in quick time.

A regulatory and development authority for road transport…

Sridhar is euphoric over the future of the road transport sector: "road transport carries 70 per cent of goods traffic and 85 per cent of passenger traffic. 70 per cent are small truck operators. Thus they account for moving 50 per cent of cargo and 60 per cent of passenger traffic. These are small entrepreneurs who form the bulk of 50 per cent of the trucks in operation. Credit is not available to these. We try to bridge this gap.

"Thus NBFCs should be extended the concessions in direct tax and service tax and facility of recovering dues on par with banks. Like the insurance sector, the road transport sector should have a regulatory and development authority like the IRDA. At present RBI only regulates; there is no focus on development," said Sridhar.

Sridhar estimates the demand for credit for the transport sector at around Rs. 100,000 crore growing by around 25 per cent annually. STFC has a share of around 20 per cent of this.

Professionals at the helm…

Sridhar pointed to the several steps taken by the Shriram Group to refine and strengthen the quality of management. Sundararajan who helped Citicorp record explosive growth in auto finance for several years, has taken charge as the managing director of Shriram Capital, set up as the holding company. Arun Duggal, a B.Tech (IIT) and MBA (IIM-A) and who brings 26 years experience in senior positions in Bank of America, is the chairman of Shriram Capital evolving as the holding company like Tata Sons.

At a reception hosted by STFC at the Taj Palace and Towers in Mumbai on 24 February, N Vaghul, former chairman, ICICI Bank, referred to the enormous amount of trust built by the Shriram Group through reliability and commitment: "the 45 per cent CAGR recorded by STFC is heartwarming, particularly, for a south-based company considered conservative and not aggressive as its northern counterparts," Vaghul said.

STFC has evolved a well-integrated businesses serving the small truck operator: from the provision of finance for used vehicles, how organically the activities have evolved to provide not just finance but taking totaling care of a vast range of the STOs' needs!

As minister Palanisamy expressed the hope, the time is not far when Shriram will succeed in integrating its services with vehicle manufacturers to offer reconditioned vehicles with warranties for 100,000 km or two years. With the announcement in the recent budget, one may also expect the group to explore possibility of expanding into a full fledged bank.