Shriram Transport Finance (STFC)

I realized Shriram Transport Finance (STFC) is not covered on valuepickr and though it will be good to start a thread on this. Below are my initial notes:

About Shriram Group

  • Shriram Group has Rich Promoter History. In the past the promoters distributed majority of its holdings to key employees to foster owner driven culture.
  • The group tries to capture overall banking and insurance needs of its under-banked customers. While STFC specializes in used commercial vehicle finance, SCUF (sister concern) focuses on MSME & Personal Vehicle finance, and Shriram Capital (parent company) focuses on Life and General Insurance.
  • The group has been trying to simplifying the holding structure and had evaluated various options in the past, like merger with IDFC bank, and merging STFC with SCUF with Sriram Capital and listing combined entity. None of it has worked out till date (2020).
  • Below link is worth read to know more about Shriram Group: Shriram Group - Intelligent fanatics


  • The industry is cyclical in nature , with new commercial vehicle demand going up/down with economy/infrastructure going up/down. Having said that, demand for used commercial vehicles is relatively stable compared to new vehicles.
  • Allowance of additional load to trucks and elimination of Octrai on Tolls (due to GST) in 2018 , have created huge capacity in existing vehicles , causing less demand for CV and declining Fright costs.
  • LCV’ s are less cyclical than MHCV, but at the same time also have less life. LCV’s are used for last mile connectivity.
  • Fright rates are linked to Fuel costs (diesel), and with decreasing fuel cost , if freight rates are not hit, vehicle operators have higher profitability.
  • Government ban of CV’s more than 10 year old is not going to happen, though the automotive industry is shouting for it since last 20 years. As of 2015-16, we have 90 lakh CV’s out of which more than 30 lakh CV’s are more than 10 years old.
  • Fright rates are dependent on multiple factors like agri output/ mining & infrastructure activities etc and the overall state of the economy.
  • BS4 to BS6 transition in 2020 has improved asset quality of Pre Owned commercial vehicles.

About Shriram Transport Finance Corporation (STFC)

  • STFC serves rural CV customers, and hence serves niche market. New CV loan is not not a focus area for the company , it is offered only for existing customers. As of FY18, company has 20 lakh customers and 1 lakh crore of assets under management (AUM).
  • Major / target customers of STFC are individual owner operators , who are dependent on their income based on the vehicle.
  • STFC prefers small ticket financing (Loan size ~ 2 -4 lakhs, where EMI is 10-12K) rather than big ticket financing
  • The company aims to maintain Net Interest margin of 7%, lending rates of ~ 16% and borrowing rates (Cost of funds) of ~9% (as of 2020).
  • Historically, company’s credit cost is close to 2%. Securitization cost of funds is lower ~ 8.5 %
  • LTV is approx 70% for old vehicles and 80% for new vehicles. 22% of AUM is Passenger Vehicles.
  • Used CV are more in demand in Rural areas. Used CV travel less than new CV. Very old CV are not fuel efficient and with rise in fuel cost, customers are advised to own used CV’s in 2-5 years range rather than 5-15 years range.
  • From FY 15 company used to report NPA based on 180 day non payment of EMI’s, which is now reduced to 90 days based on RBI guidelines.
  • STFC intends to take the option of reducing interest rates charged to customers, if that can drive the growth.
  • STFC customers have high degree of uncertainty in income as it is totally governed by business conditions, thus, delay of 1-2 months EMI is quite normal and hence, declaring NPA’s on loans whose EMI’s are not paid during last 90 days, is not a big crisis event.


  • In Used CV space, STFC has hardly any competitio n and with the economies of scale that is possesses , entry of new competitor becomes further more difficult. With this background, it gives room to SFTC to have lending discipline .
  • Relationship based model , employees 30,000 people as of 2020. Same Field officer responsible for loan disbursement and collection and maintaining relationship with clients.
  • Market Share of STFC ~ 25-30% in Used CV space. Ample growth available by capturing existing market from private financiers.
  • Company borrow’s long term (4+ Years) and lends short term (4- years), thus creating Positive ALM across all buckets.
  • Though the company is dependent on people to grow business (It has close to 26000 employees including 17000 field officers), it also uses technology’s aid to drive business . According to company, field officers do not need to come to branches for their tasks.
  • Repossession of financed vehicle is last resort used by the company. The company looks for intention and ability of the customer to repay loan.
  • Treatment of NPL (Non Performing Loans) is at discretion of branch manager. Generally, it is gauged by the manager based on customers intention to pay back.
  • For accounting / reporting purpose, company provisions 70% of NPA , which is much conservative and higher than as recommended by RBI.


  • Company operates in industry where high leverage is characteristic of the business , any adverse impact on the industry , like COVID, can cause huge distress to the company despite good risk management.
  • Company diluted equity 10% equity in 2020 despite depressed valuation. This was probably due to unforeseen circumstances , COVID, that had hit industry badly. While entire financial services sector raised equity, it was good for companies like bajaj finance and kotak that were trading at rich valuations, but not for STFC.
  • While STFC has been multibagger for investors from 2001 to 2010, it has provided no return from 2010 to 2020 period. It is testing patience of long term investors since 2010.
  • Shriram equipment Finance (previously subsidiary, now merged with STFC) was a big setback for the company, it had huge NPA’s during 2015-16 and was finally merged with STFC. Management commented that these equipment are project specific vehicles and hence are tied to single project. If the project is halted, the equipment cannot be used somewhere else as its use is very specialized. After this learning, company focused on equipment finance only for standard equipment’s, that can be used at multiple places and not project dependent. Out of total loan book of 3000 Cr in this space (FY 15-16) NPA’s were close to 500 Cr.

Questions / Further Research

  • Is monoline credit into CV finance good or bad? With scale will monoline credit be a edge for the company?
  • How to gauge performance of financial services company / STFC on ground?
  • Though STFC claims to focus on Rural India, only 35 % of AUM are actually from Rural area. Why?
  • STFC claims that it can fetch better margins from rural financed vehicles as urban areas have high competition, which means currently company’s margins will be tilted towards not so attractive Urban margins. Is this correct?
  • What is securitization? what is the difference between securitization and assignment?
  • STFC is considered conservative in its policies / accounting. How it can be verified?
  • Capital Adequacy of STFC is 20% as of FY 19-20. Is it good or bad? how is it calculated?


As of now (August 2020) , STFC is available near book value. Whether it makes it a good investment or not, is something to be thought of.


Janav Analysis on STFC -

Shriram Transport_Janav_Notes

Disclosure - No Investment, evaluating…


Good detailed post. Some of its listed NCDs (low liquidity though) were also offering good yields like 15% earlier. Now most have recovered after the capital raise. It could be another way to play this story. I am invested in few of its NCDs

It is presently trading at multi-year lows. 7% down today. Any news on any major player offloading?

1 Like

I think it was just the bearish sentiment dragging this stock down. The stock is very good value for long term investors - only reason I say long term is because the banking sector has quite a lot of volatility during the NPA cycle.

I think given all the assets are earning assets and the strong management pedigree - this is one of the two three NBFCs to hold through for at least 40 percent upside. (Others being nbfcs with strong parentage like M&Mfin and Bajajfinserve)

Sriram transport

Management commentary

Company sees pick up in activities across infra, mining, industrial segments in various areas.
But continue to see pain in passenger transportation, travel & tourism and school bus segment.This constitutes 3% of AUM and company expects 2.5% of AUM to undergo restructuring.Company expects disbursements to come back to 100% levels next quarter onwards and expect 5-6% AUM growth for FY21.
Company shall continue to maintain excess liquidity till Mar20. It has been able to raise INR
72bn during the quarter via various avenues. It aims for 20% of its borrowings to be retail
deposits in long term (currently at 13%). Collections for Sept and Oct are at 95% levels including previous arrears. However, very few people from 4.5% of customers who didn’t pay single EMI under moratorium have paid in these months and this constitutes 1% of AUM.
Management has adequately provided Co-VID related provisions and don’t expect any meaningful provisions in H2FY21.