Blue Ridge, Tiger, JM Fin to invest in Shriram venture

Truck finance company to raise Rs 600 crore

MUMBAI: Shriram Transport Finance Company, a financier for used trucks, will raise Rs 600 crore through a preferential issue to fund its needs for the next 5-6 years.

Confirming the development, R Sridhar, managing director, Shriram Transport said:

“We are bringing in New York-based hedge funds (Blue Ridge & Tiger Global) and JM Finance group as investors along with the promoters in this preferential allotment. This infusion of equity will augment the Tier-I capital of the company and will help Shriram Transport in its ambitious growth plans for the next 3 to 5 years.”

With this, Shriram plans to diversify faster into areas such as used tractor and new trucks financing segments, Sridhar said.

“Tractors are a huge market, which we are exploring now. It’s a new opportunity for us,” he said.

The company’s debt-equity ratio has averaged around 7 times in the last four years. At the same rate, a fresh equity infusion of Rs 600 crore should help raise another Rs 4,200 crore in debt.

It has assets to the tune of Rs 15,000 crore and currently collects monthly installments from 5 lakh customers. There are about 35 lakh trucks plying on Indian roads.

Shriram Transport, with the benefit of a first mover advantage in the used trucks segment, has registered an outstanding credit of 5 lakh trucks across the country and commands a 25% market share.

Sridhar says it can now grow faster and argues that banks and large non-banking finance companies (NBFCs) find it difficult to make an impact in the market, as they depend on external intermediaries, unlike Shriram, which enjoys an in-house roster of 3,000 field officers, whose expertise is in valuing vehicles accurately.

Sridhar, himself a field officer when he started out, said the group has a low attrition level and has been expanding furiously into newer markets in the North.

The Shriram group is unique as it is an employee-owned company, with Shriram Holding Madras Ltd - the holding company— owned 51% by the employees and the remaining 49% with private equity firm Texas Pacific Group and New Bridge.

Shriram now also enjoys an advantage as its used-truck financing business is considered as priority sector lending and, therefore, cheaper resources from banks are now more forthcoming for the past two years.

It has also raised resources through securitisation. Last year, it churned its portfolio by raising Rs 3,000 crore through securitisation.

It has also managed to scale down the interest rate from 30% to 20%, over a decade. Sridhar’s target is to bring it down to 18% in the coming years.