The Hindu Business Line : Shriram Transport Finance rides on demand for old trucks in 2009

Mumbai, Dec. 15 Shriram Transport Finance Company Ltd (STFC), widely considered as a benchmark in the financing of second-hand commercial vehicles, expects monthly loan off-take to improve to Rs 900 crore from January on the back of easy liquidity conditions and improved demand for old trucks.

Over the last few months, monthly loan disbursal from the company has declined to an average Rs 600 crore.

Unlike other non-banking finance companies, which exclusively finance new vehicles via tie-ups with commercial vehicle manufacturers, STFC finances the purchase of second-hand trucks by small transport operators, most of them owner-drivers. This business model, which has been honed over three decades, would stand the company in good stead and help it ride out the slowdown in the economy, said STFC Managing Director Mr R. Sridhar.

AUM growth

With commercial vehicle manufacturers announcing cuts in production due to slowdown in demand, NBFCs are expected to be adversely impacted. STFC sees its assets under management growing to Rs 30,000 crore by 2010 as against Rs 22,550 crore as of September-end 2008. Almost 75 per cent of the NBFC’s portfolio comprises old trucks, with the balance being accounted for by new vehicles.

Tightness in liquidity in the last few months has prompted the company to slowdown its loan disbursements as a precautionary measure. “We will wait and see how the third quarter progresses and then take a decision,” said Mr Sridhar.

The company’s cost of funds is pegged at 12 per cent while its lending rate averages around 20 per cent.

Low payment

The company’s loan disbursements have slowed down in the new truck segment and where it has partnership with private financiers. “The monthly loan disbursement has fallen from Rs 1,000 crore to Rs 600 crore, most of which is restricted to old trucks,” he said.

STFC is planning to ramp up the operations of its freight exchange business by attracting more volumes through individual financiers who are scattered across the country.

Last year, STFC picked up 40 per cent stake in Ashley Transport Services Ltd (ATSL), a wholly owned subsidiary of Ashok Leyland Ltd. ATSL helps truck owners get information on cargo and freight rates.

Symbiotic link

Through this company, STFC has gained foothold in the freight placement, freight exchange and bill discounting business.

The association between STFC and ATSL is symbiotic. While STFC gets a pie in “challan discounting” business for members of Transport Exchange, ATSL benefits from Shriram Transport’s strong customer base.

The company plans to scale up the freight exchange business to a national level in the next few years. “We will then look to raise capital to finance the expansion plans,” Mr Sridhar said.

Banks business

STFC helps private and foreign players meet their priority sector lending target by selling down the loans originated by it. Every year the company sells around Rs 2,500 crore of its loans to these banks.

“Foreign and private sector banks buy our loans in order to fulfil their priority sector lending targets,” Mr Sridhar said.

Related Stories:
Replacement market is big for Shriram Transport Finance
Used truck financing: Untapped potential