shriram transport documentation

8/8/2019 Shriram Transport Documentation

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A Case StudyOn

Shriram Transport Finance Company Limited

Submitted by:

Rahul Kotak (126)Rahul Gupta (127)Rahul Doshi (128)Rashi Agarwal (129)Rasika Chavan (130)


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INDEX

INTRODUCTION BOARD OF DIRECTORS VISION BUSINESS ANALYSIS CV INDUSTRY OVERVIEW PORTFOLIO KEY GROWTH DRIVERS GROWTH STRATEGY BALANCE SHEET ANALYSIS CONCLUSION


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INTRODUCTION

Shriram Transport Finance Company Limited (Shriram Transport) is Indias largest asset

financing Non Banking Financial Company (NBFC) with total Assets Under

Management amounting to ` 30,240 crores. It is the flagship company of Chennai

based Shriram Group and specialises on providing accessible and affordable loans to

small time buyers of used Commercial Vehicles (CV), a segment shunned by most other

financers.

Since its inception in 1979 Shriram has focused on providing financial assistance to

buyers of used vehicles. Its continuous focus on strengthening the bottom of the pyramid

had helped it gain the confidence of truck owners which continue to remain loyal to the

company. Today it has over 14,890 employees which collectively manage over 484branches and an expanding customer base of over 7lac. The company is listed on the

Bombay Stock Exchange (BSE), Madras Stock Exchange (MSE) and National Stock

Exchange (NSE) and has a market capitalisation of` 12,000 crores.

BOARD OF DIRECTORS

Chairman Arun Duggal

Managing Director R. Sridhar

Directors

Adit Jain Mukund Chitale (Independent)

S. Venkatakrishnan Lakshminarayan

Maya S. Verma Puneet Verma

Ranvir Dewan Sumatiprasad Bafna (Independent)


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VISION

Shriram Transport Finance Corporation was set up with the objective of offering the

common man a host of products and services that would be helpful to him on his path to

prosperity. Over the decades, the company has achieved significant success in reaching

this objective, and has created a tremendous sense of loyalty amongst its customers.

Operational efficiency, integrity and a strong focus on catering to the needs of the

common man by offering him high quality and cost-effective products & services are the

values driving Shriram Transport Finance Corporation. These core values are deep-rooted

within the organisation and have been strongly adhered to over the decades.

Shriram Transport Finance Corporation prides itself on a perfect understanding of the

customer. Each product or service is tailor-made to perfectly suit customer needs. It is

this guiding philosophy of putting people first that has brought the company closer to the

grassroots, and made it the preferred choice for all the truck financing requirements

amongst customers.

Shriram Transport Finance Corporation also believes in adhering to fair trade practices

and therefore is a leader in Corporate Governance in its sphere. The company strictlyadheres to the principles of fair trade practices and shall continue to do so in the coming

years.


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Business Analysis

COMMERCIAL VEHICLE INDUSTRY OVERVIEW

The performance of Indias Commercial Vehicle (CV) industry is directly linked to the

countrys macro economic growth, especially industrial growth. In contrast, the

correlation of the used commercial vehicle market to the countrys growth is much less. It

is mostly driven by the aspirations of truck drivers willing to graduate as Commercial

Vehicle Owner (CVO). New CV sales have strong linkages with the countrys economic

growth and the growth in agricultural and the industrial production. Used CV sales

however do not relate much to the countrys growth. The fact that Shriram has found its

niche in the neglected used vehicles segment has helped it develop over the years without

much competition.

The pre owned commercial vehicle segment is largely catered by the unorganized sector

and it largely consists of Small Truck Owners (STOs) that own typically less than five

trucks and have no banking habits. However Shriram Transport was very adamant to

bank on these vehicle owners and hence it took a long time for it to establish itself in the

market.

During the global recession of 2008 0 9 the Indian economy also faltered and the CV

sales were down 22 %. However during 2009 10, the year of global economic

resurgence commercial vehicle sales grew by over 34.6 % (in volume terms). Of these,

used commercial vehicles accounted for nearly 70% of the total sales. This has helped

Shriram Transport safeguard against the vulnerability of new vehicle sales.


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PORTFOLIO

Shriram Transport has always focused on Small Truck Owners (STOs) and First Time

users (FTUs). It offers a variety of products for this segment.

After establishing itself in this niche market, Shriram Transport has taken the path of

widening its business and ventured into financing of three wheelers and two wheelers,

tractors and passenger commercial vehicles such as buses & vans, multi utility vehicle

finance and construction equipment finance. It has also ventured into unheard areas of

engine replacement loan, tyre loan and working capital loan. Understanding its

customers base and developing dedicated products as per their needs has helped Shriram

always be a step ahead of competition.

At the same time, it has created a value ecosystem by developing vertical integration in

the sector. The company has gone on to develop strategic relationships with banks

working in the rural part of the country and also with small time private lenders. The

company has a number of kiosk terminals and has its own vast pan India network which

comes in aid to drive sales.


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KEY GROWTH DRIVERS FOR THE INDUSTRY

There are a number of factors which would continue to fuel growth in the Commercial

Vehicle industry. A number of these factors are likely to have a long term impact on the

manner in which the industry is going to grow.

1. Commercial Vehicles sold during the boom of 2003 04 are likely to hit the

resale market very soon.

During the economic boom of 2003 04 the commercial vehicle industry was

growing at an unprecedented pace of 33% y-o-y. The vehicle sales had reached a

peak of 6, 00,000 units annually. All those vehicles which were introduced in the

market then would now sooner or later come in the second market as their life

cycle completes a circle. This would bring these vehicles into potential client base

of Shriram Transport which was the pioneer and continues to be the leader in used

vehicle finance market.

2. Growing Freight capacity.

Due to the upsurge in economic activities and strong momentum in GDP growth,

freight capacity is expected to increase at a healthy rate. Generally, freight

capacity growth is 1.25-1.5 times the GDP growth. This high growth in freight

capacity will create strong demand for CVs in the system.

3. Increased aspirations of drivers to become vehicle owners.

With the availability of finance from a number of NBFCs vehicle owners and

drivers are getting more and more confident about expanding their fleet and

creating their own enterprises. This segment which is a mix of old and potential

customers is a lucrative segment for Shriram where it can grow without much

effort.


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4. Legislative measures to propel replacement demand.

Legislative pressure on banning 15-year old trucks is likely to trigger the

replacement boom. Transport associations have suggested Voluntary Retirement

Schemes for old trucks. If these old trucks are to be replaced, it will create a

trigger in replacement demand for 11 lac CVs.

5. Massive investments in roads and highways to support growth.

Government investments in the roads and highways sector is expected to support

growth in the CV industry. According to the NHAI, Indias road network is nearly

33 lac kilometers. Approximately 65% of freight and 85% of passenger traffic is

carried by the road network. Such massive investments will be positive for overall

demand

6. Ban on overloading.The ban on overloading by Supreme Court will significantly enhance the demand

for CVs in the system.


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GROWTH STRATEGY

The company already enjoys the first mover advantage in the industry which has helped it

maintained its position in the market. At a time when other financers neglected the STO

(Small Truck Owners), Shriram found a niche in them and help them grow by providing

dedicated products which would suit the needs of the masses. Even today Shriram

Transport continues to innovate and provide products which are either unparalleled in the

market or are provided by very few peers which try to understand the market.

A few strategies which are implemented by Shriram Transport include:

1. Strengthening a knowledge-led organization

During 2008-09 the Company initiated steps to create a knowledge-led organisation. It

resulted in the creation of dedicated knowledge verticals including Customers, Territory

and Products. During 2009-10, the key focus was to further strengthen the knowledge

proposition by appointing credible and reputed intellectual capital from the industry as

well as by further standardising the processes by inducting world-class technology

platforms across branches and regions for better and timely access to real-time

information. This resulted in cementing the Companys lending as well as collection

processes and at the same time

2. Creating dedicated product verticals

The Company has witnessed rapid growth in the past decade. The growth has

predominantly come from the pre-owned CV segment, where the Company has

successfully created a reputed clientele in STOs. With thorough customer knowledge, the

company became a leader in pre-owned CV segment. To strengthen each product

vertical, the Company created dedicated product teams, each headed by an industry

expert, having requisite experience in specific product. Each product vertical is

considered to be a separate profit centre, thereby further cementing the multi-product

organisation structure.


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3. Construction equipment business

The Company initiated the financing of construction equipment like forklifts, cranes,

loaders etc. However, in the wake of increased infrastructure and construction activity,

this segment witnessed a sharp surge in demand in the past two years. In the constructionequipment segment, although the Company caters to a similar consumer class (STROs),

but the product knowledge required is totally different from CV financing. Therefore, the

Company floated a 100% subsidiary consisting of a separate management team,

comprising of professionals from the realm of construction equipment finance.

4. Automalls

This is yet another innovative concept that the company has adopted to drive sales and

develop its market. These Automalls will provide a ready platform for buying and

selling of pre-owned CVs. The platform would be used by the Company to earn a fee

based income as well as strengthen its product valuation knowledge. The first

Automalls is expected to begin operations by second quarter of this year. The company

plans to open another 50 60 automalls over the period of next 12 18 months. These

auto malls would not only act as a selling point but also as workshop for the repair and

services of these vehicles. This would add another vertical to the cap of the growing

enterprise.

5. Purchase of CV & construction equipment loan portfolio

During the year, the Company purchased hypothecated loan out standings of CVs and

construction equipment of GE Capital Services India and GE Capital Financial Services

aggregating to approximately ` 1,100 crores. Given the reach and collection ability of the

Company, the portfolio would be a viable and profitable investment.


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6. Fund raising initiatives

In order to create a sustainable and scalable business model, it was very important to

mitigate the key risks, especially those relating to interest and capital availability.

Placement of Non-Convertible Debentures (NCD) with domestic investors

During the year, the Company successfully placed ` 1,000 crores of NCD with

domestic investors in a bid to diversify its liability profile. It was an indication of the

strong credibility that the Company enjoys in the market that the issue was

oversubscribed on the first day itself.

Qualified Institutional Placement (QIP)

The Company raised ` 583.86 crores through the QIP route during the year. The

Company allotted 116.58 lac equity shares of the face value of` 10 each to domestic and

international Qualified Institutional Buyers (QIB) resulting in a dilution of around 5.2%.

The net proceeds from the offering will primarily be utilised to accelerate the expansion

of the core CV financing business as well as for fresh investments in the equipment

financing and vehicle trading ventures.

7. Market expansion initiatives

The company has over 484 branches across India and continues to expand its footprint

across the country. This is helping it continuously reach to a wider customer base and

advance its network. In terms of inorganic growth the company has been instrumental in

the participation of private financiers into the organised segment. As a result, it not only

empowered the private financiers through a fiduciary relationship to increase their reach

but also enabled the STOs funded by private financiers, to access affordable finance to

grow. As of March 2010 the company has tie ups with over 500 private financers. The

company has also been the only financer to be involved in organizing truck bazaars and

fairs which exclusively deal in sale and refurbishment of new and used commercial

vehicles.


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BALANCE SHEET ANALYSIS

The balance sheet analysis helps provide an insight into how the company

functions and how it manages its funds. When one observes the balance sheet of Shriram

Transport it is not difficult to comprehend the acumen with which the company has been

timely investing into resources which would help it grow.

Shriram Transport Finance Corporation derives most of its income from the service and

processing charges it levies for the processing of loan applications. The income from

service charge & interest amount receivable accounts for nearly 80% of the companys

income. The rest of the income is received from income received from securitization

money margin money received on securitization.


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The companys income in the year 2005 06 was a little over ` 900 crores and it has

been steadily increasing to reach the mark of` 4500 crores for the accounting year 2009

10. The company managed to maintain profits and even increase them about a ` 1200

crores during the recession years of 2008 09. This is a commendable feat and can be

attributed to its unique business model and focus on the customer. This tremendous

increase is due to increase income from operations. An interesting facet about the

company is that cash transactions account for nearly 70% of the`

10 billion receivablesof the company.


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The profit after tax (PAT) has steadily increased for the company from ` 142 crores in

the year 2005 -06 to 619 crores in the year 2008 09. As per the audit report of the

March 2010 the profit after tax was ` 873 crores.

The term EPS implies the earning a shareholder earns per share. When we analyse the

reports of Shriram Transport Finance Corporation it can be derived that the company is


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smartly managing its finances to balance between returning value to its shareholders and

investing money into expanding its business.

The company has been giving a earning per share (EPS) of almost 10 for the last four

years. Even during the recession the company managed to provide a return of 10.34 to its

shareholders, which is a very good return by all standards and especially good for the

recession period in comparison to other companies.

The companys reserves were ` 2068 crores for the year 2009 10. The reserves were a

mere ` 131 crores in the year 2005 06 and since then have been growing inline with the

companys growth. The increase in reserve can be credited to the fact that the companys

premium increased as it chose to give equity shares at a premium.

A primary reason for the companys increase of reserves has been that the company

receives almost its entire income from the loan interest and dues receivables. In case a

situation arises that a major part of CV owners fail to pay the company should be able to

continue with its operations normally. This is also the reason the company prefers to keep

most of its reserves in the form of cash.


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Cash Flow

Consistently for the past five years the company has been withdrawing cash from

operating activity and putting it in improving the financing activities. Money from the

financing activities fund is being utilized to repay bank borrowings, long term

borrowings and to pay dividends to investors to name a few.

In March 2008, the company has made huge strategic investments in fixed assets, bank

deposits and other investments as per its long term goals.


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Dividend payout ratio implies to the percentage amount of profits the company decides to

share with its shareholders. The company has been paying rich dividends to its

shareholders over the years. The company gave 60% of total profits as a way of dividend

to its shareholders in the year 2009 10. The dividend payout ratio for the last few years

has been consistent improving. For the year 2005 06 it paid a dividend of 30% and for

the year 2008 09 it paid a dividend of 50%. This has helped bring investor confidence

in the company.


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Current Ratio =

Current Assets/Current Liabilities

Current ratio is calculated to know the solvency or current obligations of the company. It

acts as an indicator to know the short term credibility of the company. The industrial

standard of current ratio is 2:1. As we can see the companys current ratio has been

consistently above average. It was 5.34 for the year of 2005 06 and it came down

heavily in the corresponding years due to the companys expansion activities. For the

year 2009 - 10 the companys current ratio stood at 2.63


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DEBT EQUITY RATIO = Debt / Equity

Debt includes all the secured and unsecured loans. Equity includes the entire share capital

(equity and preference both.) It signifies the proposition in which the company funds are

divided into debt and equity. The capital gearing ratio of the company is debt ratio as the

company has not issued any preferential shares till the 2010 audit report.

For Shriram Transport Finance Corporation the debt equity ratio was 7.65 for the year of

2005 06 and as per the annual report of 2009 -10 it was 8.86. This however has not

refrained investors from investing in the company or customers from maintaining loyalty

with Shriram Transport. An example of the reliability of the company can be cited from

the fact that when it issued NCD (Non Convertible Debentures) of` 500 crores in May,

2010 the issue got oversubscribed to 1000 crores in just 2 days and the issue was closed

before its planned date. This is an important landmark as its issue was the second largest

(of an NBFC) after Tata Capital.


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CONCLUSION

The companys financial analysis leads to the conclusion that the company manages its

finances with great acumen. The company was able to manage profits even during the

recession period. It was possible only because it has a relation based model where itkeeps thorough knowledge of its customers and their needs and develops products best

suited for them.

The company has a very strong financial track record driven by fast growth in AUM and

with low NPA (Non Performing Assets). The company enjoys the strong support of all its

investors, banks, institutions and shareholders and so has been able to generate funds and

expand rapidly without running into any major troubles. The company continues to focus

on financing of used commercial vehicles and has been developing products and services

to service the sector. It is clearly evident by the companys focus plans to set up

Automalls and venturing into businesses like construction equipment finance and vehicle

equipment finance.

At the same time, the company has managed to attain stability by balancing the need of

funding the expansion and the requirement of attaining adequate cash flow within the

organisation. The requirement of maintaining cash reserves and its dependency on the

infusion of regular cash by way of payments received from the dues receivable from its

customers. The advantage however, is that its niche of financing used commercial

vehicles has still been untouched by other financers and also the sales of used commercial

vehicles is not much dependent on the growth of the country. This is well reflected in the

companys balance sheets where it can be seen the company did manage to increase its

AUM and profits all through out the years. The company has never reported a reduction

in AUM or profits or even growth right from its day of inception.

As long as the company continues to maintain the quality of its assets under management,

it should have no problem in continuing to grow. The company needs to maintain its core

focus on developing and enhancing its relationship with its customers.

shriram transport documentation

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