Shriram Transport Finance Company Limited (STFC), the flagship company of Shriram Group is the leader and pioneer in the pre-owned CV finance segment. As of Q1FY22, 90.5% of its AUM comprised of used CV financing, also the company had been significantly able to manage the lowest Cost to Income Ratio among Peer NBFCs. So, Let’s discuss the reasons behind how the company is ahead of its Peer NBFCs in terms of maintaining the Lowest Cost to Income Ratio.
Cost to Income Ratio of STFCL and the Competitors:
- Shriram Transport Finance Company Limited (STFCL) is having the lowest Cost to Income ratio of 19.1% among its peers. In simple language, the Cost to Income Ratio depicts the cost of a Banking/NBFCs institution to earn 100 Rs. In the case of STFCL, the company only incurs the cost of Rs. 19.10 for the earnings of Rs. 100.
- The Cost to Income Ratio of other NBFCs companies is quite high as compared to Shriram Transport Finance. Cost to Income Ratio of other NBFCs are:
i) SBI Cards and Payment Services– 52.5%
ii) CreditAccess Grameen– 41.2%
iii) Mahindra & Mahindra Financial Services– 36%
iv) Manappuram Finance– 34.4%
v) L&T Finance Holdings– 32.5%
vi) Sundaram Finance– 31.5%
vii) Bajaj Finance– 30.6%
viii) Aditya Birla Capital– 29.5%
ix) Cholamandalam Investment & Finance– 27.2%
x) Muthoot Finance– 23%
How Does Shriram Transport Finance manage to have the lowest Cost to Income Ratio among peer NBFCs?
i) Strong Brand Name:
- Shriram Transport Finance is having 40 years of experience in Used Vehicle Financing.
- The Company enjoys a 16% Market Share in India’s Commercial Vehicle Financing Market & 40% market share as well in NBFC CV Financing Space.
- The Company also records a high repeat percentage of customers which proves the strong liability of customers.
ii) Strong Credit Rating (AA+/AAA):
Strong Credit Rating by the Credit Rating Agencies offers the company to access the borrowings at a Lower cost which further leads to High Margins.
iii) Strategic Mix of Overall Liabilities:
The share of Retail Deposits is around 13.4% and Institutional Funding is at 86.6%.
iv) Strong Relationships:
The Company has access to fixed-rate long-term loans of 3-5 years due to strong relationships with public, private sectors, foreign banks, and institutions.
v) Operating Leverage:
- The total Asset Under Management (AUM) Size of Shriram Transport Finance is around Rs. 1.20 Lakh Cr. which is helping a key role in the Operating Leverage.
- In terms of AUM Size, Shriram Transport Finance comes next to Bajaj Finance which is having an AUM Size of around Rs. 1,52,947 Cr. as of 31st March 2021.
Should You Invest:
Shriram Transport Finance with a great history of over 40 years looks like a strong player in the industry especially in the terms of Cost to Income Ratio, AUM Size, and others. But This discussion on the Stock of Shriram Transport Finance is not direct investment advice and hence one should take investment decisions only with proper research and study.