Shriram Transport Finance Company (STFC), one of the largest asset financing NBFCs in India, has plans to enter the debt capital market with a public issue of non-convertible debentures to the tune of Rs 500 cr with an option to retain over-subscription of up to Rs 500 cr. The company is a part of the Shriram conglomerate. STFC has a niche presence in financing pre-owned trucks and small truck owners.

The profile of the company’s customers is skewed towards small and pre-owned truck owners. About 75 per cent of the total customers of the company own less than three trucks and almost the same percentage of customers apply for financing of old vehicles. Despite most of the company’s customers being small, the quality of assets remains under control and its gross NPAs and NPAs at the end of FY09 have been at 2.14 per cent and 0.83 per cent respectively. STFC’s ability to keep control of its assets comes from its unique way of collecting dues by a force of 6,000 field staff that are in constant touch with customers. The company enjoys a high net interest margin which varies from 6-7 per cent and was 6.99 per cent for FY09.

Moreover, the company is well capitalised to face any eventuality as its capital adequacy ratio was 16.3 per cent at the end of FY09. The higher credit ratings of CARE AA+ by CARE and AA (Ind) by Fitch indicate that this NCD carries high credit quality and low credit risk with timely servicing of its debt obligations. The company has proposed to use the proceeds from this issue for financing its business activities that include lending and investments. The company is offering the NCDs with five different options of half-yearly, annual and cumulative interest payments (see table). Thus, depending on liquidity requirements, investors can select any of the above options. With deposits rates in banks already being re-priced downward, we feel that this NCD with its yield of 11.5 per cent looks like a good investment for investors who can take a little risk.