'We are always looking for acquisitions to support growth'

Q&A: R Sridhar, MD, Shriram Transport Finance

Shriram Transport Finance Company Ltd (STFC), part of the Chennai-based Shriram Group, is a non-banking finance company with Rs 28,000 crore of assets under management. The company is into financing small truck owners. R Sridhar, managing director, spoke to T E Narasimhan about the future plan, including forays into banking and equipment finance. Edited excerpts:

Any sign of revival in the commercial vehicle (CV) industry?
The CV industry is cyclic. The worst is over and the next three years going to be good for the industry, which is linked to GDP (growth). If we assume 7-8 per cent GDP growth (a year), then the freight capacity growth would be around 12-13 per cent. The CV industry accounts for 70 per cent of transportation in the country.

Replacement demand in India is sluggish, with vintage CVs still plying. Unfortunately, manufacturers and stakeholders are not focused on the exit or life cycle of trucks.

What is the scenario on replacement vehicles?
Replacement is sluggish because its cost is prohibitive and replacement finance is not easily available. We are trying to rectify this. We are the only organised credit provider for second-hand trucks. The company has forayed into the second-hand truck finance market through Shriram Automall.

In India, the average age of a truck is 10-11 years, whereas in developed countries, it is five to six years. The market is estimated to be around Rs 1 lakh crore in India.

With the launch of Automall, your offering to the industry is complete?
Almost. We fund new vehicles, second-hand vehicles, working capital, credit cards, financing for equipment and insurance cover.

Then, what is the idea behind foraying into the construction equipment finance business and banking?
We had set a target to increase our asset base to Rs 50,000-60,000 crore by 2013, by increasing volume on our existing business and, at the same time, exploring other segments. We found construction equipment financing to be the next thrust.

Our existing customers want more machinery. At present, 10 per cent of our assets are in the construction business. It is not really a new business we are getting into. We are launching a subsidiary in two to three months.

Our intention for the banking foray is mainly to widen financial inclusion for our customers. Our customers are mostly under-banked. Currently, only 25 per cent of our customers use cheques for money transactions.

What is your client base?
Around 600,000. We have financed a million vehicles across 500 locations. On an average, we finance 1,000 vehicles a day.

What are the sources of finance?
Currently, the company has an equity of Rs 3,000 crore. We don’t require (more) equity and we are no longer dependent on retail. Future requirements will be met mainly through borrowings and other modes.

Recently, STFC acquired GE Capital India’s transportation finance portfolio. Any plans for more acquisition?
We acquired the GE India business for around Rs 1,200 crore. We are always looking for acquisitions to support our growth. And we are also planning to acquire assets of more than Rs 3,000 crore in the next 12-18 months.