April 2014 Edition of BEACON, A Monthly Newsletter by SIMCON. Inside this issue: INDUSTRY ANALYSIS : Non Banking Financial Company COMPANY ANALYSIS : STFC Ltd. Concept of the Month Quiz Did You Know?

1. B E A C O N
A Newsletter by SIMCON– SIMSREE Consulting Club
Volume : 2
Issue : 6 April 2014

2. INDUSTRY ANALYSIS : Non Banking Financial Company
Introduction
NBFCs have been playing a complementary role to the other
financial institutions including banks in meeting the funding
needs of the economy. They help fill the gaps in the availability
of financial services that otherwise occur in the unbanked & the
underserved areas. NBFCs account for 12.3% assets of the total
financial system.
The NBFC segment has witnessed considerable growth in the
last few years and is now being recognised as complementary to
the banking sector due to implementation of innovative
marketing strategies, introduction of tailor-made products,
customer-oriented services, attractive rates of return on deposits
and simplified procedures, etc.
NBFCs have been at the forefront of catering to the financial
needs and creating livelihood sources of the so-called
unbankable masses in the rural and semi-urban areas. Through
strong linkage at the grassroots level, they have created a
medium of reach and communication and are very effectively
serving this segment. Thus, NBFCs have all the key
characteristics to enable the government and regulator to
achieve the mission of financial inclusion in the given time.
Types of NBFCs
NBFCs have been classified on the basis of the kind of
liabilities they access, the type of activities they pursue, and of
their perceived systemic importance.
I. Liabilities based classification
NBFCs are classified on the basis of liabilities into two
categories, viz, Category ‘A’ companies, (NBFCs having public
deposits or NBFCs-D), and Category ‘B’ companies, (NBFCs
not having public deposits or NBFCs-ND).
II. Activity Based Classification
NBFCs are classified in terms of activities into five categories,
viz., Loan Companies (LCs), Investment Companies (ICs),
Asset Finance Companies (AFCs), Infrastructure Finance
Companies (IFCs) and Systemically Important Core Investment
Companies (CICs-ND-SI).
III. Size Based Classification
Non-deposit taking NBFCs with assets of Rs. 100 crore and
above were labelled as Systemically Important Non-Deposit
taking NBFCs (NBFCs-ND-SI), and prudential regulations such
as capital adequacy requirements, exposure norms along with,
reporting requirements were made applicable to them.
Market share / key players
As per the RBI, 12,159 NBFCs were registered with India as on
31st January 2014. Out of these, 244 are registered NBFCs
permitted to accept Public Deposits.
As of April 2013, the NBFCs had an asset base greater than
INR 6500 billion. The NBFCs have around 12.3% assets of the
total financial system.
Porter’s 5 forces model
Barriers to entry: Low
Licensing requirement: The licensing requirements of RBI for
NBFCs are not that stringent as compared to the banks. There
are already 12159 registered NBFCs while there are only
around 180 banks in India.
Bargaining power of consumers: High
- Many alternatives: The consumers have got many alternatives
for availing credit.
- Large number of NBFCs: The consumers have a large
spectrum to choose from.
Threat of substitutes: Moderate
- Banks: NBFCs were actually created by the government of
India as it felt the need to provide banking facilities to the poor
and underprivileged who could not get access to banks. Thus
banks are a perfect substitute for NBFCs.
- Unorganized money lenders: The unorganized money lenders
have a strong presence in the rural markets. They pose a big
threat to the NBFCs in the rural areas.
Bargaining power of suppliers: High
- Many alternatives: The suppliers in this case are the depositors
or the NBFC’s funds. The suppliers have many alternatives at
their disposal to invest their money depending on their risk
appetite. Eg: High risk: stocks, low risk: banks
marketing strategies by the companies to gain the market share.
Volume : 2
Issue : 6
BEACON : Page 1
April 2014
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Overview of Loans
Some of the key NBFC players are as follows:
Ref: CRISIL estimates (FICCI)

3. Intensity of rivalry: High
- Undifferentiated services: The service offerings by NBFCs are
almost the same. There is a low level of service differentiation.
- Marketing strategies: Due to the increased rivalry among the
NBFCs, there has been use of aggressive selling & intensive
Key growth drivers:
Rural wage growth is increasing, which will rural growth. Also,
good monsoons last years and the current general elections will
increase spending in rural areas. This in turn may lead to growth
in vehicle and gold loans from NBFCs.
Growing consumer credit market
Consumer credit market is promoted to increase by 67% from
2013 to 2020.
Product innovation
NBFCs are building organised pre-owned CV (commercial
vehicle) segment, which is largely untouched by banks. NBFCs
also finance more than 80 % of equipment leasing and hire
purchase activities in India. They currently have 70% market
share in CV finance.
Another example of product innovation was creation of an
Islamic banking NBFC firm in Kerala last August.
Product customization
NBFCs structure monthly instalments while accounting for the
seasonality of cash flows in construction equipment loans.
Use for fostering financial inclusion
Focus of NBFCs is on rural segment, Small and middle
enterprises (SMEs) and Microfinance NBFCs constitute almost
76% of the Rs. 120 billion microfinance industry in India.
NBFCs have a large rural network. The sector has been recog-
nised as complementary of banking system by introducing
diversification in the financial sector, simplified sanction
procedures, flexibility and timeliness in meeting the credit
needs.
Segment share of NBFCs and banks in retail finance
Impact analysis:
Nachiket Mor Panel RBI report
While looking for some key differences between Banks and
NBFCs, the Nachiket Mor Committee in its report (primarily
based on Financial Inclusion) batted for convergence between
the two. Many of the recommendations are similar to Usha
Thorat committee (2012) like 2-category simplification of
NBFC categorization. However, unlike the Thorat report which
recommended SLR for NBFCs, the Mor report recommends
that the SLR requirement to be done away with. It suggests
allowing them to raise funds from abroad as external commer-
cial borrowings and permitting them to seize the assets of
defaulters under the Sarfaesi Act, just as banks do.
However, two key demands of NBFCs – which would have
granted NBFCs more fund to lend - were rejected. Banks need
to invest 9% of their own money for funds they lend and borrow
the rest 91% from the market; while NBFCs have to contribute
15%. The Mor Committee recommends a status quo. The
committee has also rejected the call to bring ‘risk weights’ of
the loans given by NBFCs on a par with those by banks. A
lower ‘risk weight’ means lesser amount of own funds relative
to the quantum of the loan.
Conclusion
NBFCs have emerged as an integral part of the Indian financial
system by catering to the credit needs in under-served areas and
unbanked customers. Though NBFCs have the rural network of
branches and established rural customer base, their raison d'etre
may be threatened by new banks entering the rural areas.
References
HSBC Global Research: India NBFCs - October 2013
Financial Services – IBEF Report
FICCI: Financial Foresights: Role of NBFC’s in promoting
inclusive growth – April 2013
Fitch: India Ratings & Research Report - January 2013
News reports from Times of India, Financial Express, Eco-
nomic Times, The Hindu
https://www.dnb.co.in/BFSISectorInIndia/NonBankC2.asp
http://india-financing.com/overview-of-the-indian-nbfc-
sector.html
For detailed report and all industry analysis from previous Beacons together, please visit our blog :
http://simconblog.wordpress.com
Volume : 2
Issue : 6
BEACON : Page 2
April 2014
INDUSTRY ANALYSIS : Non Banking Financial Company
Growing per capita income
Ref: Credit Suisse

4. COMPANY ANALYSIS : Shriram Transport Finance
Corporation Ltd.
Volume : 2
Issue : 6
For detailed report and all company analysis from previous Beacons together, please visit our blog:
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BEACON : Page 3
April. 2014
starting from simple three wheelers, taxis, MUV’s, vans to high
cost and state of the art Volvo / Mercedes buses travelling
across the length and breadth of the country.
STFC also provides loans for personal cars.
Farm Equipment
Shriram Transport has a granular footprint of more than 300
rural / semi urban branches which cater to the requirement of
finance from buyers of tractors, harvesters and various other
farm equipment which are deployed both for agricultural and
commercial purposes.
Construction Vehicle & Equipment
With increased demand for construction equipment post the
investment announcement for infrastructure in the 12th 5 year
plan, STFC started separate subsidiary to fund the capital
requirements of contractors engaged in infrastructure projects
(Shriram Equipment Finance Co Ltd., aka, SEFC).
STFC also funds the retail portion of this vast business with
easy solutions for buyers of tippers, dumpers, backhoe loaders
and cranes and as also for the purchase of pre-owned
construction equipment.
Other services
Freight bill discounting : Purchasing the bill from customers at
a discount and crediting the money to the truckers within time
so that they can get an instant payment for the work they have
performed without actually waiting for 35-40 days.
Tyre Finance : Financing the tyre purchase for the trucker.
Engine replacement Finance : Financing the engine replacement
for the truckers.
Competitor Analysis
Shriram Transport finance has lot many competitors in this
field. Mah & Mah Finl. Serv, Reliance Capital, Bajaj Finance,
Muthoot Finance, PNB Gilts these are some of the competitors.
Of these, PNB Gilts is having almost double sales of that of
STFC.
Shareholding Pattern
The most recent development in the shareholding is a stake pur-
chase by Ajay Piramal of the Piramal enterprises worth INR
1600 Crores.
The most recent development in the shareholding is a stake
purchase by Ajay Piramal of the Piramal enterprises worth INR
1600 Crores.
Introduction
Shriram Transport Finance Company, Ltd. is an India-based
company that provides vehicle financing services. It works
under Shriram Group of Businesses based in Chennai. NBFC
wing of this group (STFC) was incorporated in 1979 and is reg-
istered as a Deposit taking NBFC with Reserve Bank of India
under section 45IA of the Reserve Bank of India Act,1934. It
was promoted by R. Thyagarajan, A.V.S Raja & T. Jayaraman.
Its products include Commercial Vehicle Finance, Passenger
Commercial Vehicle Finance, Multi Utility Vehicle Finance,
Three wheeler Finance, Tractor Finance and Construction
Equipment Finance. The Company has a network of 620
branches and 515 rural centers. The Company has confined its
operation to financing transport sector as the sector had been
registering consistent growth and also as trucks are assets
generating revenue on a continuous basis with almost zero
gestation period. Besides financing commercial vehicles (both
new and pre-owned) STFC also extends finance for tyres, en-
gine replacement and working capital. It also provides ancillary
services such as freight bill discounting besides offering
co-branded credit cards. It works with two of its
subsidiaries - Shriram Equipment Finance Company Ltd
(SEFC) and Shriram Automall India Ltd (SAMIL). The
Company's operation are predominantly based in S. India.
Today, Shriram Transport Finance Company has approximately
20-25% market share in pre-owned and approximately 7-8%
market share in new truck financing with more than 8.5 lakh
customers.
Business
STFC offers financing on a diverse portfolio of commercial
vehicles. They are currently offering loans to the following seg-
ments:
Heavy Duty Truck (HDT)
STFC provides loans to such vehicles which weight 16.2 tons
and above and are an integral part of the commercial activity of
any country as these vehicles are usually deployed in the long
haul distance and in transportation of materials at the ports.
Shriram Transport offers financing options for the purchase of
both new and used vehicles to this segment which has some of
the bigger fleet owners on one end of the spectrum and the
small fleet / single vehicle owner on the other.
Medium, Intermediate And Light Duty Truck (LDT)
STFC is into financing of commercial vehicles ranging from
5-16.2 tons , amounting to approximately 5 million in numbers
in India.
Pick Up Truck And Mini Truck ( P&MT)
Financing of vehicles weighing less than 5 tons, which are
approximately 3 mn on roads, with 0.3-0.5 mn vehicles being 3
wheelers and the rest being 4 wheelers
Passenger Vehicle
STFC is into financing of a wide range of passenger vehicles

5. COMPANY ANALYSIS : Shriram Transport Finance
Corporation Ltd.
Volume : 2
Issue : 6
For detailed report and all company analysis from previous Beacons together, please visit our blog:
http://simconblog.wordpress.com
BEACON : Page 4
April. 2014
SWOT Analysis
Strengths
- The pioneer in the pre-owned commercial vehicles financing
sector
- Knowledge-driven and relationship-based business model
- Pan-India presence with 539 branch offices
- A well-defined and scalable organization structure based on
product, territory and process knowledge
- Strong financial track record driven by fast growth in AUM
with low Non-Performing Assets (NPAs)
- Experienced and stable management team
- Strong relationships with public, private as well as foreign
banks, institutions and investors.
- More than 8.5 lakh customers across India
Weaknesses
- The Company’s business and its growth are directly linked to
the GDP growth of the country. Slowdown in the country’s
economy may have an adverse impact on the top line.
- No access to the Securitization and Reconstruction of
Financial Assets and Enforcement of Security Interest
(SARFAESI) Act or Debt recovery tribunal (DRT) for recovery
of bad loans and no access to refinance.
- Largely restricted to the south India market
Opportunities
- Growth in the CV market
- Strong demand for construction equipment
- Strong demand for passenger CVs
- Strong demand for pre-owned tractors
- Loans for working capital requirements of CV users
- Partnerships with private financiers will enable the Company
to enhance its reach without significant investments in building
infrastructure.
Threats
- Regulatory changes in the NBFC and ancillary sectors
- High cost of funds
- Asset quality deterioration may not only wipe out profits but
also net-worth
Commercial Vehicle Business Model
The following are the key aspects to the business of STFC:
Valuation
65-70% of loan to value ratio in case of old commercial vehi-
cles. 75-85% of loan to value ratio in case of new commercial
vehicles.
Collection/ Recovery habits
Consistent monitoring of due payments, which is necessary
owing to the underdeveloped banking habits of the customers.
Recovery is based on the knowledge of and relationship with
the customers.
Prudent Credit norms
Credit norms are decided on the basis of the financial discipline
of the customer along with the understanding of the business
Model.
Future Strategy
Core business
- Leverage the large pan-India network to enhance reach in
North & East India, particularly in large CV hubs
- To increase market share in pre-owned CV market
Expanding the pre-owned market segment
- Introduce top-up products such as finance for tyres, working
capital and engine replacement
Leveraging Private Financers
- Build partnership with private financiers in the unorganized
market to leverage their local knowledge
- Partnered with more than 500 private financiers
Axis bank co-branded credit cards
- Tied up with Axis Bank to distribute credit cards to small truck
owners
- Distributed over 3,00,000 credit cards as of March 31, 2013
Financials
References
http://in.reuters.com/finance
http://info.shine.com/company/shriram-transport-finance-
company-ltd/2967.html
Pre-owned vehicles New vehicles
Lending
yields
18-24% (for 5-12 yrs)
15-16% (for 2-5 yrs)
14-16%
Target
market
Small truck owners (less
than 2-3 trucks) with less
developed banking habits
Existing customers
willing to expand
business
Market
share
Market leadership with 25-
27%
5-7% market share
Performance Asset under management
of INR 398 Crores at the
end of FY13
Asset under
management of INR
95 Crores at the end
of FY13
Key Statistics

6. Concept of the Month
Ansoff’s Matrix
Igor Ansoff was a Russian/American mathematician who applied his work to the world of business. His most famous
work is the Ansoff Matrix. The purpose of this matrix is to help managers consider how to grow their business
through existing or new products or in existing or new markets. In this way he was helping managers to assess the
differing degrees of risk associated with moving their organisation forward.
Marketing strategies:
Ansoff’s matrix suggests four alternative marketing strategies which hinge on whether products are new or existing.
They also focus on whether a market is new or existing. Within each strategy there is a differing level of risk. The
four strategies are:
Market penetration – This involves increasing market share within existing market segments. This can be achieved
by selling more products/services to established customers or by finding new customers within existing markets.
Product development – This involves developing new products for existing markets. Product development involves
thinking about how new products can meet customer needs more closely and outperform the products of competitors.
Market development – This strategy entails finding new markets for existing products. Market research and further
segmentation of markets helps to identify new groups of customers.
Diversification – This involves moving new products into new markets at the same time. It is the most risky strategy.
The more an organisation moves away from what it has done in the past the more uncertainties are created. However,
if existing activities are threatened, diversification helps to spread risk.
References : http://businesscasestudies.co.uk/portakabin/achieving-growth-through-product-development/ansoffs-
matrix.html#ixzz31lz3nRRd
Volume : 2
Issue : 6
BEACON : Page 5
April. 2014

7.  The first management consultancy to serve both industry and government
clients was Booz Allen Hamilton
 PwC Russia was a Partner and the Official Professional Services Provider
of the XXII Olympic Winter Games and XI Paralympic Winter Games held in
the city of Sochi in Feb 2014
 More than $500 billion worth of M&A deals were announced just in the
first two months of 2014
QUIZ OF APRIL
Answers of last beacon March 2014 Quiz :
1. Accenture
2. Ahmad Jauhari, Group CEO of Malaysia Airlines
3. X: Booz & Co., Y: PwC
4. Golden Parachute
5. X: Apollo Tyres, Y: Cooper Tire & Rubber
Quiz
1. In the wake of observations made by forensic auditor X, the chief regulator of forwards and
futures markets in India has directed the India’s first listed exchange to drop Y as its statutory
auditor. Name X and Y.
2. Name the groups the two individuals in the image head.
3.Developed by Y, Xis India’s first ever payment network.
Name X and Y
4. An online tool X allows shoppers to compare Y’s
prices on food and household products to those of its
competitors. Name X and Y.
5. Mondelez International’s JV with Amsterdam's D.E. Master Blendershas created a new global
player in the burgeoning coffee market. Name this new player.
ANSWERS : MARCH ISSUE
Answer To: simcon.simsree@gmail.com with Subject= simcon_quiz_april_2014
Winner will be recognized.
All Correct Answers will be published in next month’s Edition.
Contributions invited:
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Volume : 2
Issue : 6
BEACON : Page 6
April. 2014
Winner :-
Aruna Rathod
GIM HCM, Goa