Banks and NBFCs

Shriram Transport Finance: Pre-Owned Vehicle Financing

Shriram Transport Finance Company Limited is the flagship company of the Shriram Group.

(A) About Shriram Transport Finance

  • Shriram Group has significant presence in Financial services like  Commercial Vehicle Financing Business,  Consumer Finance,  Life and General Insurance,  Stock Broking,  Chit Funds, Life and General Insurance Products and units of Mutual Funds.
  • The Company "Shriram Transport Finance Co Ltd" established in the year 1979 and is registered as a Deposit taking Non-Bank Financial Company with Reserve Bank of India under section 45IA of the Reserve Bank of India Act ,1934.
  • Today, Shriram Transport Finance is one of the largest Asset Financing NBFCs in India with a niche presence in financing Pre-owned Trucks and Small Truck Owners (STOs).

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You can also read our older post on "Chola Finance" (Click to Read) which is a peer of Shriram Transport Finance Co Ltd.

(B) Journey Since Inception

shriram transport finance journey

(C) Executive Board of Directors

(i) Mr. S. Lakshminarayanan - Chairman (Non - Executive)

Mr. S. Lakshminarayanan is a Non-executive Director on the Board of the Company. He holds a Master Degree in Science in Chemistry. He also hold a Postgraduate Diploma from University of Manchester in Advanced Social & Economic Studies.

Mr. Lakshminarayanan is also a Member of Indian Administrative Service (IAS-retired) and as such held several Senior Positions in the Ministry of Home Affairs, Ministry of Communications and Information Technology, Ministry of Information & Broadcasting of the Govt. of India and in the Department of Tourism, Culture and Public Relations, Department of Mines, Mineral Resources, Revenue and Relief and Rehabilitation of the Govt. of Madhya Pradesh. He received INR 11,65,000 as Remuneration for F.Y. 2019-20.

(ii) Mr. Umesh Govind Revankar - Vice Chairman & Managing Director

Mr. Umesh Govind Revankar is the current Chairman & Managing Director of the Company. He holds a Bachelor’s degree in Business Management from Mangalore University and a Master of Business Administration in Finance. Mr Revankar Started his career as an Executive Trainee in 1987.

He has been associated with the Shriram Group for the last 28 years and has extensive experience in the Financial Services Industry. During his stint with the Shriram Group, he shouldered various responsibilities and worked in several key roles of business operations. In the F.Y. 2019-20, Mr. Revankar received Remuneration of INR 1,09,86,667 i.e. 0.01% of Total Revenue.

(D) Shareholding Pattern

shriram transport finance shareholding pattern
shriram transport finance key promoters holding
shriram transport finance key shareholders

(E) Asset Under Management of Shriram Transport Finance

(i) Total AUM

Shriram Transport's Total Assets Under Management have shown a consistent growth from INR 531,162 Million in the year 2014 to INR 1,172,428 Million in the F.Y. 2021.

shriram transport finance total assets under management

The Company's Total AUM grew at a CAGR of 12% over past 7 Financial Years, mainly due to increase in the share of other loans to the Total AUM and continuous growth in the AUM of used Vehicles segment i.e. from INR 4,57,089 Million in F.Y. 2014 to 10,45,733 Million in F.Y. 2021. Therefore, around 90% of the AUM is from pre owned vehicle financing.

The AUM growth of Shriram Transport Finance impacted mainly after FY18. The growth of AUM in FY19, FY20, FY21 is in low single digits. Automobile sales as well as NBFC credit reduced during these years. As per RBI data, following change took place for Vehicle financing sector:

RBI stats on NBFCs

FY19 onwards, NBFCs’ industrial credit growth impacted by the stress in thermal power projects, lower demand for finance owing to slowdown in construction activities, fall in manufacturing sector output as well as disruptions due to COVID-19. However, several NBFCs remained ahead of the curve in retail sector by diversifying into other areas of vehicles financing like used vehicles, two-wheelers and three- wheelers in place of commercial vehicles. This helped in arresting the fall in credit to this sector.

(i) Segment-wise AUM Break-up

As of 31.March.2021, Heavy Commercial Vehicles contribute Maximum to the Total Assets Under Management of the Company i.e. 47.51%. On the other hand, Medium and Light Commercial Vehicles, Passenger Vehicles and Tractor Loans contribute 24.68%, 20.99% and 2.72% respectively to the Total AUM of the Company.

shriram transport finance stock research segment wise AUM breakup

(ii) New Vehicles AUM

Shriram Transport Finance's New Vehicles AUM Shows an average growth over the years and grew at a CAGR of 4% over past 7 Fiscal years.

shriram transport finance stock research segment wise AUM breakup

In FY21, Company's AUM of New Vehicles decreased by 19.8%. It is mainly due to slowdown in the demand of new vehicles because of 2nd wave of Covid-19 outbreak.

(iii) Used Vehicles AUM

Used Vehicles AUM of the company has shown a Consistent growth over the years. AUM of Used Vehicles grew at a CAGR of 13% over last 7 years.

shriram transport finance stock research segment wise AUM breakup

During the FY21, company's used vehicles loan AUM grew by 11.3%. This is mainly on account of decrease in the demand of new vehicles and continuous demand from the priority sectors.

(iv) Other Loans AUM

Company's other loans mainly comprise of Working Capital Loans, Business Loans. Over the last 7 Years Company's Other Loans Segment grew at a CAGR of 20%, showing a considerable growth.

shriram transport finance stock research segment wise AUM breakup

(vi) Area-wise AUM Break-up

The Company's about 49% of the Total AUM comes from Rural Areas, where population is less than 1 Lakh. On the other hand, 35.5% is contributed by Semi-urban Sectors, where population is between 1 Lakh to 10 Lakh and 15.1% of the Total belongs to Urban branches, where population is more than 10 Lakh.

shriram transport finance stock research with AUM breakup region wise

(F) Borrowing Profile

The Company has diversified its borrowings mix by raising the share of Public Deposits and External Commercial Bonds, mitigating Liquidity Risk.

shriram transport finance stock research with detail of borrowings profile

In the F.Y. 2021, the Company's Borrowing of External Commercial Bond increased to 16.74% from 13.36% in F.Y.2020. Also, the Borrowing Share of Public Deposits increased to 15.24% in Fiscal year 2021 from 12.63% in F.Y. 2020.

On the other hand, Company's Borrowing Share of Bonds decreased by 2%, stands at 20.98% in F.Y. 2021. Subordinated Debts stands at 4.35%, reduced by 1.66% in the F.Y. 2021.

Moreover, Term Loans of the Company increased to 16.09% in F.Y. 2021 from 15.58% in Previous year. Securitization almost remains same in F.Y. 2021, with a share of 22.04%.

(G) Interest

(i) Interest Income

Company's Interest Income comprises of Interest On Loans, Interest Income From Investments, Interest On Deposits With Banks and Other Interest Income.

shriram transport finance stock research with detail of interest income

Over last 7 years, Company's Interest Income grew at a CAGR of 12%. Interest income grew by 6% in FY20 and 7% in FY21.

(ii) Interest Expend

Interest Expended by the Company includes Interest on Deposits, Interest on Borrowings, Interest On Debt Securities, Interest on subordinated liabilities and Other Interest Income.

In the year 2021, Company Interest expenses increased by 10.25%. On the other hand, in Q-4, 2021 Company's Interest Expended stands at INR 2,316.52 Crores from INR 2,176.98 Crore, increased by 6.40%.

(iii) Net Interest Income

Company's Net Interest Income grew at a CAGR of 12% in the past 7 Fiscal Years.

Net interest income analysis of shriram transport finance

*Net Interest Income = Interest Income - Interest Expended

(iv) NIM (%)

Over the years, Company's NIM (%) has shown a Volatile growth.

In the year 2021, Company's NIM (%) stands at 6.70% against 7.16% in the F.Y. 2020.

NIM% analysis of shriram transport finance

(H) Group Structure

The Company has only one Associate Company.

(i) Shriram Automall India Limited (SAMIL)

Shriram Transport Finance has 44.56% stake in Shriram Automall India Ltd. This Associate of the Company provides Fee-based Facilitation Services for the sale of Pre-owned commercial and Passenger Vehicles, Agricultural and Construction Equipment, Dealer’s stock of Pre-owned Two Wheelers, etc. repossessed by Banks and Financing companies. Moreover, The Company has 86 Automalls located across the Country.

(I) Branch Network

The Company has a pan-India presence with a network of 1,817 Branches, 24,452 Employees, 18,906 Business Teams, 500 Private Financiers and 820 Rural Centers. Moreover, the company has built a strong customer base of approx. 2.12 Million.

shriram transport finance branch network

Shriram Transport Finance has around 50% of Branches in Rural & Semi-urban Areas, which gives them a clear advantage to capitalize on the rebound in Rural Demand.

In order to further leverage its Network and diversify its offerings, the Company expanded its Product Portfolio in High Margin Rural Financing Business of Tractors Small CV, Three Wheelers, Passenger Commercial Vehicles and Construction Equipment.

(J) Financial Parameters

(i) Net Sales

Company's Net Sales grew at a CAGR of 12% over last 10 years.

shriram transport finance financial performance analysis

(ii) Profit After Tax

Over last 11 years, PAT of Shriram Transport Finance grew at a CAGR of 11%.

shriram transport finance PAT performance analysis

Profit After Tax of the company de-grew to INR 2,487 crore in the year 2021 from INR 2,502 Crore in F.Y. 2020.

However, In the Q-4 2021, Company's PAT grew to INR 754.93 Crore from INR 223.38 Crore, showing a an increase of about 70%.

(iii) PBIDTM (%)

shriram transport finance EBITDA performance analysis

(iv) PATM (%)

(v) ROA (%)

shriram transport finance ROA performance analysis

(vi) ROE (%)

shriram transport finance ROE performance analysis

The Company has a volatile Track Record of Return on Equity (ROE) and Return on Assets (ROA) from last 7-8 Fiscal years .

(vii) Gross NPAs to Gross Advances (%)

shriram transport finance NPAs

(viii) Net NPAs to Net Advances (%)

shriram transport finance NPAs

NPA ratio increased largely in FY16 due to change in RBI policy. The Company revised its recognition norms of NPA from 180 days to 150 days and increased provision on standard assets from 0.25% to 0.30%.

STFCL's asset quality ratios/metrics elevated over the past several years given the fact that the company largely caters to borrowers with modest credit profile and relatively under-banked customers. Company's borrowers are primarily individual small road transport operators. The truck utilization and income streams of these borrowers are more vulnerable to weak economic activity. The reported Gross NPA has remained elevated between 8.5 to 9.0% for STFCL over the past 5 years.

For FY21, Company's Gross NPAs to Gross Advances (%) stands at 7.06.

(ix) Capital Adequacy Ratio (%)

Capital Adequacy Ratio stands at 22.50% as of Q4 FY21 compared to 21.99% as of Q4 FY20, showing a stable growth.

(x) Dividend Pay Out Ratio (%)

shriram transport finance dividend payout analysis

(K) Management Discussion and Concall Highlights

Key Financial Highlights for Quarter 4, FY21:

  • Total Income of STFC stands at INR 44,978.7 mn in Q4 FY21, increased by 7.95% from INR 41,664.8 mn Q4 FY20.
  • On the other hand, Total Income for the whole year 2021 stands at INR 174,364.0 mn, against INR 165,757.6 mn in F.Y. 2020.
  • Net Interest Income stands at INR 21,511.2 mn in Q-4, F.Y. 2021and INR 81,671.0 mn for the F.Y. 2021, increased by 9.65% and 0.74% respectively.
  • Cost to income ratio at 21.20% in FY21 as compared to 23.31% in FY20.
  • Profit After Tax grew to INR 7,549.3 mn in Q-4 F.Y. 2021 as compared to INR 2,233.8 mn in Q4 FY20.
  • However, PAT for the F.Y. 2021 stands at INR 24,872.6 mn against INR 25,018.4 mn, decreased by 0.58%.
  • Asset Under Management in Q-4, 2021 is at INR 1,172,428.3 mn as compared to INR 1,097,492.4 mn in Q-4, 2020.
  • 6.85% NIM (%) for Q-4, 2021 and 6.70% for Fiscal Year 2021.
  • Capital Adequacy Ratio stands at 22.50% as of Q4 FY21 compared to 21.99% as of Q4 FY20.
  • NPA stands at 7.06% in Q-4, 2021 as compared to 8.36% in Q-4, 2020.

Other Key Highlights

  • As per the Management, Sales of New Vehicles come down in the Month of April due to Covid spread and likely to be lowered for the couple of Quarters.
  • Management also added that it should help the Used Vehicles prices to remain strong and Demand seems to be quite good.
  • Cost To Income is stable in the Current Year than the previous Fiscal Year. But company expects marginal increase by about 22-24% because Company has started hiring Staff from last September.
  • Company also stated that it is looking for increasing Staff in Next Couple of Years.
  • As per the Management, the Company will establish another 300 Branches in Next Couple of Years.
  • On the Technology side, Company is continuously working on establishing versatile Mobile Platform.
  • Most recently, raised Rs 1,998.98 crore through qualified institutions placement (QIP) of equity shares. The Company launched its QIP on June 7, 2021 and received 6.3x oversubscription. Board also approved Preferential Issue to Shriram Capital (Promoter) of Rs.500 cr. Thus, this adds to the company's long term funds profile.

(L) Opportunities and Risk/concerns

Opportunities & Key Positives

(i) Strong Parent

Shriram Transport Finance is the part of the Shriram conglomerate which has significant presence in Financial Services business like - Commercial Vehicle Financing, Consumer Finance, Stock Broking, Chit Funds and Distribution of Financial Products such as Life & General Insurance products and units of Mutual Funds.

Apart from these Financial Services, the Group is also present in non-financial services such as Property Development, Engineering Projects and Information Technology. As a part of the Shriram Group, the company derives considerable management, operational and financial support from Group companies.

(ii) Market leadership in the Pre-owned Commercial Vehicle (CV)

Market for Second hand Truck Financing is under penetrated with 55-60% of the Market comprises of Private Financiers/Money Lenders, who charge high Interest Rates. To grab this opportunity this segment has been the key focus area for the Company ever since its inception. Company has been constantly engaged in initiative to corporatize this untapped segment. And now with its 40 years of existence since 1979, Shriram Transport became a dominant player in used Commercial Vehicle Financing Business.

(iii) Diversified Product Portfolio

With a track record of about 40 years in this Business, it is among the leading Organized Finance provider for the Commercial Vehicle Industry with a focus to provide various Credit Facilities to Small Truck Owners. It has also added passenger commercial vehicles, multi-utility vehicles,  three wheelers, tractors and construction equipment to its portfolio, making it a diversified,  end to end provider of Finance solutions to the Domestic Road Logistics Industry.

Besides financing commercial vehicles (both new and pre-owned) it also extend Finance for Tyres,  Engine Replacement and Working Capital. It also provide ancillary services such as Freight Bill Discounting, Tax Finance and Toll Finance.

(iv) Strict Eligibility Criteria for Granting Loans

As per the Policy of the Company, Contracts at the time of assignment should not be more than 30 days overdue and contracts that are delinquent by more than 60 days would be excluded from the cover computation. Even the proportion of contracts, which are delinquent, should be less than 15% of the pool at any point of time.

Additionally, eligibility criteria related to Loan To Value (LTV), seasoning, geographical concentration, Internal Rate of Return (IRR), loan size and asset-class wise concentration has been specified to ensure robust quality of the pool.

(v) Commercial Vehicle Back In Reckoning

Commercial Vehicle Business Segment is witnessing tailwinds in the nature of -

  • uptick in fleet utilization led by improved economic activity.
  • improving cash flows of operators.
  • fuel price hike being compensated by increasing freight rates
  • good rural demand due to bumper Rabi crop and forecast of normal monsoon.
  • sustainable used CV financing traction, triggered by emission norms, scrappage policy implementation, supply disruption in New Commercial Vehicle availability and replacement demand.

(vi) Strong Play on Rural Recovery

A faster recovery of the rural sector is expected to support Vehicle Demand. The Company has around 50% of branches in rural & semi urban areas, which gives them a clear advantage to capitalize on the rebound in rural demand. Also, in the last 1 year the company has been adding new branches, majority of which are the satellite branches outside the semi-urban centers.

(vii) Robust collection and Recovery Mechanism

Shriram Transport undertakes centralized tracking of customer loan repayment schedules on a Monthly basis based on the outstanding tenure, number of instalments due and defaults committed, if any.

Further, all Borrower Accounts are reviewed at least once a year, with a higher frequency for larger exposures and delinquent borrowers. This Recovery and collection operations are administered entirely in-house, ensuring better oversight and lower delinquencies.


(i) Slowdown in the Economy

The prospects of Commercial Vehicle industry are largely linked to economic activity, so any prolonged slowdown in the economy will impact the sale of Commercial Vehicles and ultimately to the vehicle financing companies both in terms of Loan growth and Asset Quality.

Lockdown due to second wave of Covid-19 or second moratorium announcement may lead to dip in collection efficiency and an uptick in stressed assets can impact growth and profitability for the company.

(ii) Demand Slow-down

The commercial vehicle industry is already under pressure due to the demand slow-down and now due to Corona virus outbreak, the whole new set of challenges emerged. But now the situation seems improving as gradually the economy is opening up.

(iii) Highly Dependent on Commercial Vehicles

The company is heavily dependent on Commercial Vehicle Segment and especially pre-owned vehicles. Over 85% of the loan book is concentrated in vehicles over five years old. The company has high-risk customer base as it offers loan to economically lower class, who have no credit ratings.

(iv) Average, though Improving Resource Profile

Company has an established track record in raising Retail Borrowings which helps diversify its Resource Profile. However, its cost of borrowings continues to be higher than peers. While the company managed to tap various borrowing sources having raised over INR 40,000 crores in fiscal year 2021, the biggest traction during raising Funds was seen in Q4FY21. Further the company has also been able to raise funds via retail deposits.

(v) Modest Asset Quality

Shriram Transport Finance largely caters to borrowers with modest credit profile and relatively under-banked customers. Company's borrowers are primarily individual small road transport operators. The truck utilization and income streams of these borrowers are more vulnerable to weak economic activity. The reported Gross NPA has remained elevated between 8.5 to 9.0% for STFCL over the past 5 years.

The collection efficiency for STFCL was low during the moratorium period till August 2020. Post the moratorium period and with the gradual reopening up of the economy, the monthly collection efficiency jumped to almost 95% in September 2020.

This improvement sustained with collection efficiency crossing 100% in December 2020. Also, it remained at similar levels till March 2021 reflecting upon the fact that the company is collecting from overdue accounts as well. Consequently, the Gross GNPA improved to 7.06% as of March 31, 2021 from 8.36% as of March 31, 2020.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry's Publications.

Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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