SHRIRAM TRANSPORT FINANCE

Belongs to Chennai-based Shriram Group. Lends to small truck owners. Focusses on the segment not taken by banks.
Secret Sauce Built scale in a niche business by understanding the customer well.
Financial Dashboard ChrysCapital invested at Rs.35 per share in 2005; TPG Newbridge came in at Rs. 112 per share in 2006; JM Finance/Blueridge/Tiger Global paid Rs. 300 per share in 2007.
What the Smart Set Saw An ability to minimise risk in a segment considered high-risk.
Guiding Light To streamline the business by eliminating the middlemen dominating the truck resale business.

It is an unusual business model by any count. As soon as its customers become large enough, Shriram Transport Finance Company (STFC) asks them to take their business away to a bank. The company will only lend to truckers who own between one and four trucks. A bulk of the lending is for the resale of old trucks. Yet, the model, which has helped build a customer base of 1.4 million customers and an asset value of 27,000 crore for the Chennai-based company, has been hugely successful. STFC has over the past 30 years built up a rapport with the trucker fraternity which has been impossible for anyone else to replicate so far.

So how does one make money by lending to a category that was left out by traditional lenders for being high-risk? "Serving sub-prime customers was no easy task," says R. Sridhar, managing director of STFC. "For years, STFC would get a lower credit-rating because of the customer profile, leading to more expensive funds. Finding resources from the banks and institutions for this large but credit starved segment was an ardous process.''

 

Despite this handicap, the company was able to bring in institutional credit to the market that it built up simultaneously. The rates at which it lends have softened to 16-18 percent per year from above 20 percent even four years ago. Ironically, the company's large customer base helps it spread the risk, says Sridhar.

 

One measure of STFC's success is the returns that the Delhi-headquartered private equity firm ChrysCap reaped last month, when it sold off its holding at 11-12 times its investment. ChrysCap earned more than Rs 1,400 crore on the investment it made five years ago.

 

The focus at STFC these days is to expand the business further, by pushing out the traditional truck brokers who dominate the resale market. This is being done by organising the sales of repossessed trucks at auctions all over the country. STFC finances the purchase but without any commission, saving money for both buyer and seller. The company has begun maintaining a nationwide database of trucks, with pictures of the machine and details of its condition and age. Truckers can access these on touch screens and decide if they want to buy a vehicle.