In­ter­view: Umesh Govind Re­vankar, Chief Ex­ec­u­tive Of­fice, Shri­ram Trans­port Fi­nance Com­pany

Manag­ing Direc­tor & Chief Ex­ec­u­tive Of­fi­cer, STFC

Commercial Vehicle - - WHAT'S INSIDE -

Q. The year 2017 marks Shri­ram Au­tomall’s sixth an­niver­sary. How has the jour­ney been?

A. The plan ini­tially was to give our customers a rea­son­able choice to buy a ve­hi­cle at a fair price. We are a used ve­hi­cle fi­nance com­pany in the form of Shri­ram Trans­port Fi­nance (STF) af­ter­all. This would im­prove our val­u­a­tion ex­per­tise. And, this is how we dis­cov­ered the ac­tual used mar­ket price even though we had the val­u­a­tion ex­per­tise for used ve­hi­cles. For the cus­tomer it was a mat­ter of choice; for us, it amounted to a learn­ing op­por­tu­nity. Truck buy­ers phys­i­cally in­spect the ve­hi­cle be­fore buy­ing it. This led to the for­ma­tion of this busi­ness ac­tu­ally. We started with trucks and then di­ver­si­fied into pas­sen­ger ve­hi­cles. We have to our credit the auc­tion of two-wheel­ers too. We have also done some gold auc­tions apart from be­ing present in prop­er­ties (real es­tate) as well. Credit of this achieve­ment should go to the re­la­tion­ships we have fos­tered over the years. We be­gan work­ing closely with cor­po­rate clients to sell their re­pos­sessed ve­hi­cles. Cor­po­rate banks wanted other ser­vices. This led us to en­ter into other ar­eas of busi­ness. As far as the cus­tomer is con­cerned, we still have around 50 per cent of the busi­ness turnover com­ing from ve­hi­cles. Customers walk in a day or two prior to the auc­tion, and park their ve­hi­cle in a bid to get a fair price. They are un­able to get a fair price when they deal with a bro­ker or a dealer. It is of­ten that they are not aware of the fair price. Our plat­form helps them, to get a good price. The cus­tomer can change his ve­hi­cle, in­crease or de­crease the price by gaug­ing the pulse of the customers at the auc­tion. We have around five lakh bid­ders. Many of these could be one time buy­ers. They come to the auc­tion, buy and sell. We thus have sell­ers as well as buy­ers com­ing to us.

Q. How has the used ve­hi­cle and in­dus­trial equip­ment seg­ment evolved in your opin­ion?

A. We are in­creas­ingly see­ing par­tic­i­pa­tion from man­u­fac­tur­ers. Imag­ine a tran­si­tion from BSIII to BSIV, and there are some ve­hi­cles which they will not be able to sell. They have to find a way to sell these ve­hi­cles. It also hap­pens that some man­u­fac­tur­ers re­sort to plac­ing their ex­ist­ing in­ven­tory for sale. There are those that en­cour­age their deal­ers for buy­ing and sell­ing. Deal­ers ac­cu­mu­late old ve­hi­cles, and take part in our auc­tion. We thus have customers that in­clude man­u­fac­tur­ers, banks, other com­pa­nies, deal­ers and in­di­vid­ual truck op­er­a­tors. Our pref­er­ence is to sell to the cus­tomer di­rectly. We pre­fer a B2C busi­ness model over a B2B busi­ness model. The in­ten­tion be­hind this is to be able to fi­nance the cus­tomer and build a re­la­tion with him. The chal­lenge is in doc­u­men­ta­tion. What­ever ve­hi­cles we try to gather from in­di­vid­u­als or cor­po­rates, we or­gan­ise their doc­u­ments for a smooth ti­tle trans­fer. Not ev­ery­one does this. Some cor­po­rates and banks pose a big chal­lenge for us due to the lack of proper doc­u­ments. We al­ways pre­fer a ve­hi­cle with doc­u­ments, and are thus able to fund the buyer as per his re­quire­ment.

Q. What are the key mile­stones the com­pany has achieved?

A. A key mile­stone for us was when we part­nered with banks in the sec­ond year of our op­er­a­tion. We signed up with one or two banks. Now, al­most all banks have a re­la­tion­ship with us. The par­tic­i­pa­tion of al­most all the banks makes us an ideal plat­form. We are able to cater to the needs of banks, in­di­vid­u­als or in­sti­tu­tions. We are, in terms of num­bers, hav­ing a quar­terly rev­enue of Rs.150 crore from the Au­tomall. That is the top-line. We are mak­ing a profit. This year, the profit mar­gin will be around Ru­pees-eight to Rs.10 crore. Net profit was not some­thing that we con­sciously tar­geted. Our aim was to in­crease the rev­enue of the com­pany. The fig­ure of Rs.150 crore would be a good mile­stone there­fore. We should soon be able to dou­ble it. The growth that we ex­pect from Au­tomall is 40 per cent on the top line. The bot­tom line can vary

de­pend­ing on the chal­lenges, in­clud­ing the vary­ing op­er­a­tional ex­penses. We would like to in­cur more ex­penses now on the busi­ness. Our in­vest­ment here af­ter will be into tech­nol­ogy. The aim is to make peo­ple par­tic­i­pate through their mo­bile phones. They would not be re­quired to be phys­i­cally present at the auc­tion. The cus­tomer will be able to see the live stream of the auc­tion, and par­tic­i­pate. He could al­ter­na­tively visit any of our branches to view the live-stream and par­tic­i­pate. In six months, we should be able to make this pos­si­ble.

Q. What are the key fo­cus ar­eas in terms of fi­nance that you are look­ing at?

A. We never looked at this busi­ness as fi­nan­cial in na­ture. The ba­sic idea was, and is to sup­port customers; to help them buy the right ve­hi­cle at the right price. We have achieved that. As I said, we ex­pect the top-line to grow at a rate of 30 to 40 per cent an­nu­ally. We will ad­di­tion­ally look at in­creas­ing the num­ber of cen­tres. We have 64 cen­tres as of now. We would like to take them to 150. We have been op­er­at­ing on prop­er­ties that we have leased. We would now want to con­vert to a fran­chise model.

Q. How has the strat­egy to di­ver­sify from just sell­ing used com­mer­cial ve­hi­cles panned out?

A. We are happy with the progress we have done. We have es­tab­lished a sig­nif­i­cant ru­ral pres­ence. This has helped us to fi­nance trac­tors and ve­hi­cles aimed at ru­ral mar­kets. We added pas­sen­ger ve­hi­cles due to the com­ing of cab ag­gre­ga­tor busi­ness mod­els like Ola and Uber. The pres­ence in dif­fer­ent seg­ments of used ve­hi­cles has helped us to cater to the dif­fer­ing needs of our customers.

Q. What is the con­tri­bu­tion from each seg­ment that you op­er­ate in; from Shri­ram Trans­port Fi­nance Com­pany, and from Shri­ram Au­tomall?

A. Com­mer­cial ve­hi­cles still dom­i­nate. The share from trans­porta­tion (small and big trucks com­bined) is about 70 per cent. From pas­sen­ger ve­hi­cles, it is about 25 per cent. From farm equip­ment, it is around five per cent. As far as the Au­tomall busi­ness goes, pas­sen­ger ve­hi­cles con­trib­ute 35-40 per cent. We ex­pect pas­sen­ger ve­hi­cles to con­trib­ute more than 50 per cent go­ing for­ward.

Q. What was the ef­fect of de­mon­eti­sa­tion on your busi­ness?

A. We are re­cov­er­ing from the ef­fect of de­mon­eti­sa­tion. Trans­ac­tions saw a 30 per cent de­cline in the third quar­ter of the cur­rent fi­nan­cial year. We are ex­pect­ing the busi­ness to bounce back this quar­ter. The busi­ness of used ve­hi­cle has al­ways been cash in­ten­sive. Peo­ple found it dif­fi­cult to par­tic­i­pate. We are yet to un­der­stand the im­pact of Rs.3,00,000 cash trans­ac­tion limit put by the gov­ern­ment. We have to really un­der­stand that par­tic­u­lar as­pect. Once we un­der­stand it, we will be able to tell you how things will pan out. As far as the fourth quar­ter of the cur­rent fi­nan­cial year is con­cerned, it is look­ing good. We are hop­ing to end this fi­nan­cial year with good earn­ings.

Q. What is the short to medi­umterm and medium to long-term plan for growth?

A. In the medium-term, we should be able to grow 30 per cent on our top-line. That is in the next fi­nan­cial year (FY201718). In the long run, we ex­pect tech­nol­ogy to play a ma­jor role. We will add clas­si­fied and mo­bile ap­pli­ca­tions. It will be di­rectly pro­por­tional to the money we in­vest in tech­nol­ogy and its im­ple­men­ta­tion. We are bullish on that front. We ex­pect to grow very fast in the next three to four years. The last quar­ter of this fi­nan­cial year is ex­pected to dis­play de­mand on the back of pre­buy­ing. From April 2017, BSIV emis­sion reg­u­la­tions will come into force. The im­ple­men­ta­tion of reg­u­la­tions will neg­a­tively im­pact the de­mand in the first quar­ter of FY2017-18. The sec­ond quar­ter of the next fi­nan­cial year will be un­cer­tain due to the im­ple­men­ta­tion of Goods and Ser­vices Tax (GST). The next six months may not be good for new ve­hi­cles. De­mand for used ve­hi­cles is likely to be high. De­mand for Rabbi crop in April-May will be high. This is likely to in­duce de­mand from the ru­ral sec­tor. De­pend­ing on the mon­soon, post the Oc­to­ber 2017 quar­ter, de­mand from all seg­ments in­clud­ing CVs and trac­tors is ex­pected to be strong.

Q. How are dif­fer­ent chan­nels con­tribut­ing to in­crease Shri­ram Au­tomall’s rev­enue?

A. The phys­i­cal chan­nel con­trib­utes 90 per cent of the busi­ness. The ‘kiosks’ haven’t added much to the vol­umes. We are slowly look­ing to tap the mo­bile seg­ment. In Clas­si­fieds, we haven’t really in­vested much. It is a medium that needs sub­stan­tial in­vest­ments, both in terms of tech­nol­ogy

upgra­da­tion and up-keep. We would like to di­vert our prof­its to­wards adding tech­nol­ogy.

Q. What re­gions are you look­ing at to ex­pand Shri­ram Au­tomall net­work?

A. We have been strong in the west­ern re­gion. It is the north­ern and eastern re­gion where we want to strengthen our pres­ence.

Q. How do you look at the par­tic­i­pa­tion of banks and NBFCs?

A. Banks have been sup­port­ive of used ve­hi­cle equip­ment busi­ness seg­ment. NBFCs are not, bar­ring a few. This could be be­cause they feel that that we are com­pet­ing with them in terms of fi­nanc­ing. Over a pe­riod of time, they, I am cer­tain, will see the ad­van­tages.

Q. With reg­u­la­tions like fuel emis­sion norms, CAFE, Bharat NCAP and the scrap­page pol­icy, do you see a dis­rup­tion in CV sales?

A. These fac­tors will only en­hance the de­mand for used ve­hi­cles. There is an ur­gency to change the ve­hi­cle and move up to an ef­fi­cient one. Fuel prices are go­ing up. Reg­u­la­tory fac­tors will cre­ate de­mand to sell old CVs and buy new ones. In ei­ther case, fi­nance needs will go up. This will help us. We would like to give a help­ing hand to the cus­tomer. In terms of scrap­page, as of now no leg­is­la­tion ex­ists. Ex­cept Delhi there is no other state that has banned 10 year old CVs. The cap is at 15 years. The gov­ern­ment will have to com­pen­sate the peo­ple own­ing the as­set in case of the scrap­page scheme. Till such time re-reg­is­tra­tion of ve­hi­cles will hold us in good stead.

Q. What are the key trends from the global used ve­hi­cle mar­kets that will find their way to In­dia?

A. In­dia be­ing a very unique coun­try, one can­not repli­cate trends from other mar­kets blindly. I have tried to un­der­stand the Chi­nese used ve­hi­cle mar­ket. Even that mar­ket is not mov­ing in a struc­tured man­ner when it comes to com­mer­cial ve­hi­cles. How­ever it still re­mains the only coun­try in my opin­ion that we can learn from. Mar­kets like USA and Europe are way dif­fer­ent. Their en­tire ecosys­tem is dif­fer­ent. In­dia has more in­di­vid­ual own­ers and small fleet op­er­a­tors. En­trepreneur­ship spirit is high here. Peo­ple want­ing to own a busi­ness is high here.

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