Shriram Transport Finance Co. Ltd. (NS:SRTR) (STFC) which is the largest commercial vehicle financier in India and Shriram-City Union Finance Ltd. (NS:SHCU) (SCUF) which is the largest two-wheeler financier in the country are set to merge soon and the new entity will be called Shriram Finance Limited. It will strengthen the group’s leadership position by becoming India's largest retail NBFC.
The company is at a pivotal point in its journey and is ready to build a new bouquet of financial products and services under one roof while keeping the needs of the customers at the forefront. The new entity would aim to reduce the cyclicality in its vehicle finance business by diversifying its loan book across new product segments such as consumers, small enterprises, and personal loans. The group is looking to position the new entity as a financier for the under-served section of the society or the ‘Aam Aadmi’. It would also aim to provide financial services in rural and semi-urban areas.
The company would also be tapping the digital era with its ‘Shriram One’ app to build an omnichannel experience for customers on a single platform for all of their financial needs. A focus on digital commerce business would be there via personalized offers and communications, customized products, end-to-end customer service etc. The whole objective of the app would be to create a paperless experience for customers and provide them with personalized assistance leveraging the power of data.
The about-to-be-merged entities’ earnings for FY22 could be summed up as INR 13,314 crores in net interest income (INR 9,316 crores from STFC and INR 3,998 crores from SCUF) and the combined AUM (asset under management) of around INR 1,60,227 crores in FY22. While SCUF contributed only 30% to the combined revenue, its customer base contribution is significantly higher at over 68% (45.5 lakh) to the combined customer base of 66.6 lakh.
Industry Outlook
As demand for commercial vehicles has improved over the last few months on account of higher capacity utilization from existing infrastructure and the government’s massive tax cut on fuel prices, the management expects the momentum to continue till FY23. The commodity-price inflation is feeding into the higher average ticket size of new and used vehicles which is a positive factor for any lending business. Demand for two-wheelers has been robust for the last many months, resulting in improving 2W credit.
On the MSME lending front, the credit gap continues to remain high, however, a stronger policy framework and incentives to boost lending by financial institutions will increase the penetration of financial institutions in the MSME sector.