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A C a se S tu d y


S h rira m T ra n s p o rt F in a n c e C o m p a n y L im it e d

S u b m it t e d b y :
R a h u l K o ta k (1 2 6 )
R a h u l G u p ta (1 2 7 )
R a h u l D o sh i (1 2 8 )
R a sh i A g a rw a l (1 2 9 )
R a s ik a C h a v a n (1 3 0 )



Shriram Transport Finance Company Limited (Shriram Transport) is India’s 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
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 484
branches 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.

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)


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 strictly
adheres to the principles of fair trade practices and shall continue to do so in the coming

Business Analysis


The performance of India’s Commercial Vehicle (CV) industry is directly linked to the
country’s macro economic growth, especially industrial growth. In contrast, the
correlation of the used commercial vehicle market to the country’s 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 country’s economic
growth and the growth in agricultural and the industrial production. Used CV sales
however do not relate much to the country’s 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

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.


Shriram Transport has always focused on Small Truck Owners (STOs) and First Time
users (FTU’s). 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
customer’s 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.


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 NBFC’s 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

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, India’s 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

6. Ban on overloading.
The ban on overloading by Supreme Court will significantly enhance the demand
for CVs in the system.


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 Company’s 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.

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 construction
equipment 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

5. Purchase of CV & construction equipment loan portfolio

During the year, the Company purchased hypothecated loan out standing’s 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.

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


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 company’s
income. The rest of the income is received from income received from securitization
money margin money received on securitization.

The company’s 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 receivables
of the company.

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

smartly managing its finances to balance between returning value to its shareholder’s 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 company’s 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
company’s growth. The increase in reserve can be credited to the fact that the company’s
premium increased as it chose to give equity shares at a premium.

A primary reason for the company’s 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.

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.

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 shareholder’s 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.

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 company’s 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 company’s expansion activities. For the
year 2009 - 10 the company’s current ratio stood at 2.63

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.

The company’s 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 it
keeps 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 company’s 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 it’s 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
company’s 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.