‘We’ve a big role to play in modernising country’s truck fleet’

A few days before R Sridhar, MD, Shriram Transport Finance Company, tied up long-term funds that he says will sustain the company for five to six years, he met DNA Money’s Satish John and Vishal Chhabria to  explain how his company has found a niche. Sridhar, who rose through the ranks, says the company never makes lateral hires.

On fresh tranche of funds

We are raising Rs 600 crore by bringing in New York-based hedge funds — Blue Ridge and Tiger Global — and Kampani Finance (JM Finance group) as equity investors.

We have offered them 1.2 crore shares at Rs 300 per share, amounting to Rs 360 crore.

The promoters will invest Rs 240 crore through the preferential allotment route to augment the tier-1 capital of the company. It will sustain Shriram for the next 3-5 years.
On Shriram’s business model

We are in the business of funding used commercial vehicles. About 35 lakh commercial vehicles ply on Indian roads.

Statistics reveal over 75% of the trucks are owned by small entrepreneurs, who own 2-3 trucks. For banks and large non-banking financial companies (NBFCs) to cater to this segment is challenging.

The truckers can’t provide documents such as bank statements. This is where Shriram comes in. Our employees evaluate old trucks and the customers’ creditworthiness and also undertake the collection work. No intermediaries are involved.

Hasn’t it been difficult to raise resources, given the risk perception of the business? 

In the past five years, the commercial vehicle industry has done very well in line with our economic growth. Now banks and institutions are ready to lend us money. This is the story of our growth.

Today, we have the strength to raise resources. Over time, with our scale and experience, we have been able to bring down the interest rates (for customers) from 30% 10 years ago to 20% and hope to reduce it further to 18%.

With the used CV market growing rapidly, can banks ignore the sector?

Banks are interested in lending because the customer is classified in the priority sector. As I said, there are big entry barriers, which aren’t easy to overcome.

How will you tackle competition?

We channelise the banks’ money.  And we are catering to a niche segment of financing the needs of small truck owners. We are looking ahead with more confidence.

We have the scale and size. The size is Rs 15,000 crore asset under management. And we’ve got 400 branches. Our roster has a strength of 6,500 employees and we have 5 lakh outstanding vehicles.

On a cumulative basis, it is very high but outstanding vehicle means what we have given credit to our customers to buy 5 lakh vehicles. From five lakh customers we collect money every month.

Two-thirds of the collection is by cash. Our customers don’t have any banking habit. If you do it through an intermediary, valuations would be enhanced and there could be fraudulent practice.

New regulations are putting pressure on CV owners

Commercial vehicle owners are under pressure to phase out old trucks. They are under pressure from various quarters ....

Is there an opportunity here?

Every truck will have to be upgraded to meet new requirement. If the average age of a commercial vehicle has to come down in line with the international norm of six years, then you will need one lakh crore rupees to fund the upgradation.

So we feel we have a role to play in contributing to the moderrnisation of the truck fleet by being an interface between the banks and the truckers.

What is your market share as per the age group you have demarcated?

In the new vehicle, we have a 7% share while we have 20-25% in used CVs. We are the largest in the old vehicles financing business.

On your NPAs

We lose 2% of what we lend.

How do you manage training, attrition?

Employees are our strength. We have low attrition. In the Shriram group, the employees own the group. There are no promoters.