Shriram Transport Finance Company Limited A Public Limited Company Incorporated under the Companies Act, 1956 (Registered as a Non-Banking Financial Company within the meaning of the Reserve Bank of India Act, 1934 (2 of 1934)) Registered Office: Mookambika Complex, 4, Lady Desika Road, Mylapore, Chennai 600 004, Tamil Nadu, India. Corporate Office: Wockhardt Towers, Level 3, West Wing, C-2, G Block, Bandra-Kurla Complex, Bandra (East), Mumbai 400 051 Tel. : +91-22-4095 9595 Fax: +91-22-4095 9597/96 Website: www.stfc.in Contact Person: Shri Parag Sharma Chief Financial Officer; E-mail: parag@stfc.in Private Placement by Shriram Transport Finance Company Limited, ( Company or Issuer or STFC ) of Secured, Rated, Redeemable, Non-convertible Debentures ( NCDs / Debentures ), aggregating to Rs 200.00 crores + Green Shoe of Rs.200.00 Crores, hereinafter referred to as the Issue. GENERAL RISKS Investors are advised to read the Risk Factors carefully before taking an investment decision in the Issue. For taking an investment decision, the investors must rely on their own examination of the Issuer and the Issue including the risks involved. Specific attention of the investors is invited to the Risk Factors. The NCDs have not been recommended or approved by Securities and Exchange Board of India (SEBI) nor does SEBI guarantee the accuracy or adequacy of this document. Disclaimer : BY COMPANY This information Memorandum is neither a prospectus nor a statement in lieu of prospectus and does not constitute an offer to the public to subscribe for or otherwise acquire the Debenture issued by the company. Apart from this information memorandum, no offer Document or Prospectus has been prepared in connection with this issue and no prospectus in relation to the Company or the NCD relating to this offer has been delivered for registration nor is such a document required to be registered under the applicable laws. This information memorandum is issued by the company and has been prepared by the Company to provide general information on the company and does not purport to contain all the information a potential investor may require. The information relating to the Company contained in the Memorandum is believed by the Company to be accurate in all respect as of the date hereof. LISTING The Secured, Rated, Redeemable, Non- Convertible Debentures ( NCD or Sub Debts ) are proposed to be listed on the wholesale debt market segment of Bombay Stock exchange Limited (Designated Stock Exchange) CREDIT RATING The Debentures have been rated AA+, by CARE for vide letter dated 10/10/2012. The rating Care AA+ indicates very low credit risk. The ratings provided by Care may be suspended, withdrawn or revised at any time by the assigning rating agency and should be evaluated independently of any other rating. These ratings are not a recommendation to buy, sell or hold securities and investors should take their own decisions.
ISSUE SCHEDULE ISSUE OPENING DATE 23 rd October 2012 ISSUE CLOSING DATE 23 rd October 2012 ISSUER S ABSOLUTE RESPONSIBILITY The issuer, having made all reasonable inquiries, accepts responsibility for and confirms that this Information Memorandum contains all information with regard to the Issuer and the issue, which is material in the context of the issue, that the information contained in the Information Memorandum is true and correct in all material aspects and is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that there are no other facts, the omission of which make this document as a whole or any of such information or the expression of any such opinions or intentions misleading in any material respect. REGISTRAR & TRANSFER AGENT INTEGRATED ENTERPRISES (INDIA) LIMITED Address: 2nd Floor, KencesTowers, No 1, Ramakrishna Street, Off North Usman Road, T. Nagar Chennai 600017., Phone : 914428140801 Fax :914428142479 e-mail: sureshbabu@iepindia.com This Information Memorandum prepared under SEBI (Issue and Listing of Debt Securities) Regulation dated June 6, 2008 and Non-Convertible Debentures (Reserve Bank) Directions, issued by RBI through its circular dated June 23, for placement of Non-Convertible Debentures securities is neither a prospectus nor a statement in lieu of prospectus and does not constitute an offer to the public generally to subscribe for or otherwise acquire the debt securities to be issued by the Company. This is only an Information Memorandum intended for private use. This schedule is for the exclusive use of the institutions to whom it is delivered and It should not be circulated or distributed to third parties. It cannot be acted upon by any person other than to whom it has been specifically addressed. Multiple copies hereof given to the same entity shall be deemed to be offered to the same person. No document in relation to the issuer or this issue of Debentures has been delivered for registration to any authority. 2
SECTION I : GENERAL Definitions / Abbreviations This Information Memorandum uses certain definitions and abbreviations which, unless the context indicates or implies otherwise, have the meaning as provided below. References to any legislation, act or regulation shall be to such term as amended from time to time. Company related terms Term "STFCL", "Issuer", the Company and our Company AOA/Articles / Articles of Association Associate Board / Board of Directors CARE Control D&B Research Report DIN Description Shriram Transport Finance Company Limited, a company incorporated under the Companies Act, 1956, registered as a Non-Banking Financial Company with the Reserve Bank of India under Section 45-IA of the Reserve Bank of India Act, 1934, and having its Registered Office at Mookambika Complex, 3rd Floor, 4, Lady Desika Road, Mylapore, Chennai, Tamil Nadu- 600004 Articles of Association of our Company Shriram Asset Management Company Limited The Board of Directors of our Company and includes any Committee thereof from time to time Credit Analysis and Research Limited Control for the purposes of this Information Memorandum (other than in the context of any financial information of our Company or the Group or other than the context may otherwise require) shall have the same meaning as assigned to such term under the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011 The report titled 'Commercial Vehicle Finance - A Comparative Study, June 2012' prepared by Dun and Bradstreet Director Identification Number ESOP/ESOS Company s Employee Stock Option Scheme 2005 Equity Shares FITCH Group ICRA Loan Assets MIS Equity shares of face value of ` 10/- each of our Company Fitch Ratings India Private Limited Shriram Transport Finance Limited and its wholly owned subsidiary companies namely, Shriram Equipment Finance Company Limited and Shriram Automall India Limited ICRA Limited Assets under financing activities Management Information System of our Company 3
Term Memorandum / MOA Net Loan Assets Newbridge NAV Description Memorandum of Association of our Company Assets under financing activities net of Provision for non-performing assets Newbridge India Investments II Limited Net Asset Value NBFC Non-Banking Financial Company as defined under Section 45-IA of the RBI Act, 1934 NPA Promoter/SHMPL SHMPL Scheme Non - Performing Asset Shriram Holdings (Madras) Private Limited The proposed scheme of arrangement and amalgamation of SHMPL, with our Company, pursuant to a resolution passed by our Board of Directors and by the board of directors of SHMPL at their respective meetings, both held on December 21, 2011 / Rs./ INR/ Rupees The lawful currency of the Republic of India SAIL SCL SEFCL Shriram Automall India Limited Shriram Capital Limited (Formerly known as Shriram Financial Services Holdings Private Limited) Shriram Equipment Finance Company Limited Share Subscription Agreement Share Subscription Agreement dated February 2, 2006, as amended on September 12, 2008 between Newbridge India Investments II Limited, the founders (as defined therein), Mr. R. Thyagarajan, Mr. T. Jayaraman, Mr. AVS Raja and Shriram Financial Services Holding Private Limited (now known as SCL), Shriram Recon Trucks Limited, Shriram Holdings (Madras) Private Limited and SOFL SIL SIL Scheme of Merger SOFL SOFL Scheme of Merger SOT Statutory Auditors Subsidiaries Shriram Investments Limited The scheme of arrangement and amalgamation of the erstwhile SIL, with our Company vide order of Hon ble High Court of Madras passed on November 25, 2005 Shriram Overseas Finance Limited The scheme of arrangement and amalgamation of the erstwhile SOFL with our Company vide order of Hon ble High Court of Madras passed on December 1, 2006 Shriram Ownership Trust Our joint statutory auditors being M/s. S. R. Batliboi & Co. and M/s. G. D. Apte & Co. Subsidiaries of our Company namely Shriram Equipment Finance Company Limited and Shriram Automall India Limited 4
Term We, us and our Description Our Company and/or its Subsidiaries, unless the context otherwise requires Term Allotment / Allotted Allottee Application Form CRISIL Debt Listing Agreement Debt Regulations Depositories Act Depository(ies) DP / Depository Participant Designated Stock Exchange Market Lot Record Date Registrar to the Issue Trustees / Debenture Trustee Working Days AFC ALM ALCO Description Unless the context otherwise requires, the allotment of the NCDs pursuant to the Issue to the Allottees The successful applicant to whom the NCDs are being/have been allotted pursuant to the Issue The form used by an applicant to apply for NCDs being issued through the Information Memorandum CRISIL Limited The listing agreement entered into/to be entered into between our Company and the relevant stock exchange(s) in connection with the listing of debt securities of our Company SEBI (Issue and Listing of Debt Securities) Regulations, 2008, issued by SEBI, effective from June 6, 2008 as amended from time to time The Depositories Act, 1996, as amended from time to time National Securities Depository Limited (NSDL) and /or Central Depository Services (India) Limited (CDSL) A depository participant as defined under the Depositories Act Bombay Stock Exchange of India Limited One NCD The record date (a) in connection with NCDs shall be 3 (three) days prior to the date on which interest is due and payable, or the date of redemption, or as may be prescribed by the relevant stock exchange(s). Integrated Enterprises (India) Limited Trustees for the NCD Holders in this case being IDBI Trusteeship Services Limited All days excluding Saturdays, Sundays and a public holiday in Mumbai or at any other payment centre notified in terms of the Negotiable Instruments Act, 1881 Asset Finance Company Asset Liability Management Asset - Liability Committee 5
Term CAR CV FTU(s) KYC Norms LC LCV(s) LFO(s) LTV Non-Deposit Accepting NBFC Directions NBFC-D NBFC-ND Prudential Norms Public Deposit Directions SFO(s) SME SRTO(s) STO(s) AGM AS Act BSE CAGR Description Capital Adequacy Ratio computed on the basis of applicable RBI requirements Commercial Vehicle First Time Users Customer identification procedure for opening of accounts and monitoring transactions of suspicious nature followed by NBFCs for the purpose of reporting it to appropriate authority Loan Company Light Commercial Vehicles Large Fleet Operators Loan to value Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 NBFC registered as a deposit accepting NBFC NBFC registered as a non-deposit accepting NBFC Non-Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 The Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998 Small Fleet Operators Small and Medium Enterprises Small Road Transport Operators Small Truck Owners Annual General Meeting Accounting Standard notified under the Companies (Accounting Standards) Rules, 2006, as amended The Companies Act, 1956, as amended from time to time BSE Limited Compounded Annual Growth Rate 6
Term CDSL DRR Description Central Depository Services (India) Limited Debenture Redemption Reserve FDI Policy Consolidated Policy on Foreign Direct Investment in India effective from April 10, 2012, notified by Circular 1 of 2012 issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India FEMA FEMA Regulations FII/FIIs Foreign Exchange Management Act, 1999, as amended from time to time Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, as amended from time to time Foreign Institutional Investor(s) Financial Year / FY Financial Year ending March 31 GDP GoI HUF IFSC Indian GAAP IRDA IT Act MICR NECS NEFT NRI NSDL NSE PAT PAN RBI Gross Domestic Product Government of India Hindu Undivided Family Indian Financial System Code Generally Accepted Accounting Principles in India Insurance Regulatory and Development Authority The Income Tax Act, 1961, as amended from time to time Magnetic Ink Character Recognition National Electronic Clearing Services National Electronic Funds Transfer Non Resident Indian National Securities Depository Limited National Stock Exchange of India Limited Profit After Tax Permanent Account Number The Reserve Bank of India 7
Term RBI Act ROC RTGS SEBI Description The Reserve Bank of India Act, 1934, as amended from time to time Registrar of Companies Real Time Gross Settlement The Securities and Exchange Board of India constituted under the Securities and Exchange Board of India Act, 1992 TDS WDM Tax Deducted at Source Wholesale Debt Market 8
Table of Content Disclaimer : 1 SECTION I : GENERAL 3 I. Name and Address of the Registered Office of the Company 11 II. Name and Address of the Directors of the Company 11 III. Brief Summary of the business/activities of the Company 12 IV. Brief history of our Company 20 Summary of last three audited Balance Sheet and Profit and Loss Account with qualifications by auditors 21 Issue Price... 25 Premium (Rs.)... 25 V. Securities issued and sought to be listed under the current document 30 VI. Issue Size 31 VII. Details of utilization of the issue proceeds 31 IX. Details of Borrowings including any other securities in past 34 X. Any material event /Development or change at the time of issue or subsequent to the issue which may affect the issue or the investors decision to invest/continue to invest in the debt securities 94 XI. Particulars of debt securities issued (i) for consideration other than cash, whether in whole or part, (ii) at a premium or discount, or (iii) in pursuance of an option 118 XIII. Undertaking to use a common transfer form 165 XIV. Redemption amount, period of maturity, yield on redemption 165 XV. Terms of Offer or Purchase 165 The terms Debenture holders or Holders of Debentures wherever used in this Information Memorandum shall be read and construed in the manner so as to include the debenture holders of the respective category), as the context may require under this Information Memorandum unless otherwise specifically provided in this Information Memorandum. 173 XVI The discount at which such offer is made and the effective price for the Investor as a result of such discount. 173 XVII. Debt Equity Ratio prior to and after issue of the debt security 174 XVIII. Servicing behavior of the existing debt securities on existing debt securities, payment of due interest on due dates on term loans and debt securities 174 9
XIX. Permission / Consent from the prior creditors 174 XX. Name of the Debenture Trustee(s) 174 XXI. Rating Rationale adopted by the rating agencies 174 XXII. Listing of Debentures/NCDs 175 XIII. Term Sheet 175 Annexure 1 Rating Letters issued by Rating Agencies 179 Annexure 2 Terms Sheet 179 Annexure 3 Consent Letter from Debenture Trustee 179 Annexure 4 Application Form 179 10
I. Name and Address of the Registered Office of the Company Shriram Transport Finance Company Limited. Mookambika Complex, 4, Lady Desika Road, Mylapore, Chennai 600004 II. Name and Address of the Directors of the Company as on July 05, 2012 Name, Designation, Age and DIN Mr. Arun Duggal Non Executive Chairman Age: 65 DIN: 00024262 Mr. Umesh Govind Revankar Managing Director Age: 47 DIN: 00141189 Mr. Ramachandran Sridhar Non-Executive and Non-Independent Director (appointed in casual vacancy) Age: 53 DIN: 00136697 Mr. Sumati Prasad Mishrilal Bafna Address A-4, 3 rd Floor,West End Colony, New Delhi 110021. Flat 202, Kalpana CHS Limited, 11 th Road, Khar (West), Mumbai- 400052. Bungalow 33, Atur Park, V. N. Purav Marg, Chembur, Mumbai 400071. 22, Gobind Mahal, Non-Executive and Independent Director 86 B, Marine Drive, Mumbai 400020. Age: 50 DIN: 00162546 Mr. Mayashanker Verma Non-Executive and Independent Director A 55, Belvedere Park, DLF City, Phase III, Age: 73 DIN: 00115431 Mr. Puneet Bhatia Non-Executive Director and Nominee of Newbridge India Investments II Limited Age: 45 DIN: 00143973 Gurgaon 122002, Haryana. 214 B Aralias Apartments, DLF PH- V Old Golf Club, Gurgaon, Haryana 122 009. Mr. Lakshminarayanan Subramanian 33, Paschimi Marg, First Floor, Vasant Vihar, New Delhi 11
Non-Executive and Independent Director Age: 65 DIN: 02808698 Mr. Ranvir Dewan Non-Executive Director and Nominee of Newbridge India Investments II Limited Age: 58 DIN: 01254350 110057. 41, Ewe Boon Road,# 11-41, Crystal Tower, Singapore-259335. Company Secretary & Compliance Officer Mr. Vivel M Achwal Wockhardt Towers, Level 3, West Wing, C-2, G Block, Bandra-Kurla Complex, Bandra (East), Mumbai 400 051 Tel. : +91-22-4095 9595 Email id: vivekmadhukar.a@stfc.in Statutory Auditors of the Company M/s. S. R. Batliboi & Company Chartered Accountants 6 th Floor, Express Tower, Nariman Point, Mumbai 400021 Contact Person: Mr. Shrawan Jalal Partner Contact : +91-22- 66579200 M/s. G. D. Apte & Company, Chartered Accountants, Dream Presidency, 1201/17E,Shivajinagar, Off Apte Road, Pune 411004 Contact Person: Mr. U S Abhyankar Partner Contact : +91-20- 25532114 Lead Manager/Arranger of the Company : III. Brief Summary of the business/activities of the Company Overview We are the largest Indian asset financing NBFC*, with a primary focus on financing pre-owned commercial vehicles. The D&B Research Report had named our Company as the largest asset financing NBFC in India in their research based on various financial and non financial parameters. We are among the leading financing institutions in the organized sector for the commercial vehicle industry in India for FTUs and SRTOs. We also provide financing for passenger commercial vehicles, multi-utility vehicles, three wheelers and tractors. In addition, we provide ancillary 12
equipment and vehicle parts finance, such as loans for tyres and engine replacements, and provide working capital facility for FTUs and SRTOs. We also provide ancillary financial services targeted at commercial vehicle operators such as freight bill discounting and also market co-branded credit cards targeted at commercial vehicle operators in India, thereby providing comprehensive financing solutions to the road logistics industry in India. * Source: The D&B Research Report, in terms of their research based on various financial and non financial parameters. We have recently forayed into the business of providing stock yard services, refurbishing pre-owned commercial vehicles and construction equipment and providing a trading platform for the auctioning and sale of such pre-owned commercial vehicles and construction equipment, showrooms for refurbished pre-owned commercial vehicles, as well as commercial vehicles repossessed by financing companies, through our wholly-owned subsidiary, Shriram Automall India Limited, which was incorporated on February 11,. We have also forayed into the business of providing equipment finance in connection with both new and pre-owned construction and other equipment, through our wholly owned subsidiary, Shriram Equipment Finance Company Limited, which was incorporated on December 15, 2009 and received a certificate of registration dated October 8,, to carry on the business of a NBFC (without accepting public deposits) from the RBI. Our current lines of business and organisational structure are as follows: Our Company was established in 1979 and we have a long track record of over three decades in the commercial vehicle financing industry in India. The Company has been registered as a deposit-taking NBFC with the RBI since September 4, 2000 under Section 45IA of the Reserve Bank of India Act, 1934. We are a part of the Shriram group of companies which has a strong presence in financial services in India, including commercial vehicle financing, consumer finance, life and general insurance, stock broking, chit funds and distribution of financial products such as life and general insurance products and mutual fund products, as well as a growing presence in other businesses such as property development, engineering projects and information technology. Our widespread network of branches across India has been a key driver of our growth over the years. As of March 31, 2012 we had 502 branches across India, including at most of the major commercial vehicle hubs along various road 13
transportation routes in India. We have also strategically expanded our marketing network and operations by entering into partnership and co-financing arrangements with private financiers in the unorganized sector involved in commercial vehicle financing. As of March 31, 2012 our total employee strength was 15,057. We have demonstrated consistent growth in our business and in our profitability. Our Assets Under Management include loan assets in the books of our Company and assets that have been securitized / assigned by us. Our Assets Under Management has grown by a compounded annual growth rate, or CAGR, of 19.74 % from Rs. 19,60,739.26 lacs (comprising Assets Under Management in the books of our Company of Rs. 15,20,683.42 lacs, loan assets securitized and assigned of Rs. 4,18,610.03 lacs and portfolio managed by our Company of Rs. 21,445.81 lacs) as of March 31, 2008 on an unconsolidated basis to Rs. 40,30,662.79 lacs (comprising Assets Under Management in the books of our Company of Rs. 22,08,048.80 lacs, and loan assets securitized and assigned of Rs. 18,22,613.99 lacs) as of March 31, 2012 on an unconsolidated basis. Our capital adequacy ratio as of March 31, 2012 computed on the basis of applicable RBI requirements was 22.26 % on an unconsolidated basis, compared to the RBI stipulated minimum requirement of 15.00%. Our Tier I capital as of March 31, 2012 was Rs. 4,77,200.43 lacs on an unconsolidated basis. Our Gross NPAs as a percentage of Total Loan Assets were 3.14 % as of March 31, 2012. Our Net NPAs as a percentage of Net Loan Assets was 0.45% as of March 31, 2012 on an unconsolidated basis. Our total income on an unconsolidated basis increased from 2,51,504.11 lacs in fiscal 2008 to 5,89,387.66 lacs in fiscal 2012 at a CAGR of 23.73%. Our net profit after tax increased from Rs. 38,982.65 lacs in fiscal 2008 to Rs. 1,25,744.96 lacs in fiscal 2012, at a CAGR of 34.02%. A summary of our assets under management, total income and Net profit after tax for the corresponding periods specified below on an unconsolidated basis are as follows: Rs. in Lacs Particulars As at March 31, 2008 As at March 31, 2009 As at March 31, As at March 31, 2011 As at March 31, 2012 Assets Under Management 19,60,739.26 23,35,423.75 29,18,593.48 36,18,263.32 40,30,662.79 Net Non performing assets 13,553.78 14,746.53 12,488.76 7,445.92 9,772.14 For the Financial Year Ended March 31, 2008 For the Financial Year Ended March 31, 2009 For the Financial Year ended March 31, For the Financial year ended March 31, 2011 For the Financial year ended March 31, 2012 Total Income 2,51,504.11 3,73,763.10 4,50,138.30 5,40,105.45 589,387.66 Net Profit after Tax 38,982.65 61,240.21 87,311.74 1,22,988.00 125,744.96 Our Strengths We believe that the following are our key strengths: 14
The largest asset financing NBFC in India The D&B Research Report had named our Company as the largest asset financing NBFC in India in their research based on various financial and non financial parameters. * Source: The D&B Research Report, in terms of their research based on various financial and non financial parameters. We primarily cater to FTUs and SRTOs and we believe we are among the leading financing institutions in the organized sector in this particular segment. Our widespread network of 502 branches across India as of March 31, 2012 enables us to access a large customer base including in most major and minor commercial vehicle hubs along various road transportation routes in India. We believe that our widespread branch network enables us to service and support our existing customers from proximate locations which provide customers easy access to our services. We have also strategically expanded our marketing and customer origination network by entering into partnership and co-financing arrangements with private financiers involved in commercial vehicle financing. We believe our relationship with these partners is a critical factor in sourcing new customers and enhancing reach and penetration at low upfront capital cost. The relationships we have developed with our customers provide us with opportunities for repeat business and to cross sell our other products as well as derive benefit from customer referrals. Our Assets Under Management on an unconsolidated basis as of March 31, 2012, was Rs. 40,30,662.79 lacs (comprising Assets Under Management in the books of our Company of Rs. 22,08,048.80 lacs, loan assets securitized and assigned of Rs. 18,22,613.99 lacs). This is supported by a strong capital base, with share capital of Rs. 22,632.46 lacs and reserves and surplus of Rs. 5,76,598.79 lacs, on an unconsolidated basis, as of March 31, 2012. Our capital adequacy ratio as of March 31, 2012 computed on the basis of applicable RBI requirements was 22.26%, on an unconsolidated basis compared to the RBI stipulated minimum requirement of 15.00%. Our Tier I capital as of March 31, 2012 was Rs. 4,77,200.43 lacs on an unconsolidated basis. Access to a range of cost effective funding sources We fund our capital requirements through a variety of sources. Our fund requirements are currently predominantly sourced through term loans from banks, issue of redeemable non-convertible debentures, and cash credit from banks including working capital loans. We access funds from a number of credit providers, including nationalized banks, private Indian banks and foreign banks, and our track record of prompt debt servicing has allowed us to establish and maintain strong relationships with these financial institutions. We also place commercial paper and access intercorporate deposits, if required. As a deposit-taking NBFC, we are also able to mobilize retail fixed deposits at competitive rates. We have also raised subordinated loans eligible for Tier II capital. We undertake securitization and assignment transactions as a cost effective source of funds. In relation to our long-term debt instruments, we currently have long term ratings of CARE AA+ from CARE, FITCH AA(ind) from FITCH and CRISIL AA/Stable from CRISIL. In relation to our short-term debt instruments, we have also received short term ratings of CRISIL A1+ from CRISIL. The rating of the NCDs by CRISIL/CARE (whichever applicable) indicates high degree of safety regarding timely servicing of financial obligations and carrying very low credit risk. We believe that we have been able to achieve a relatively stable cost of funds despite the difficult conditions in the global and Indian economy and the resultant reduced liquidity and an increase in interest rates, primarily due to our 15
improved credit ratings, effective treasury management and innovative fund raising programs. We believe we are able to borrow from a range of sources at competitive rates. The RBI currently mandates domestic commercial banks operating in India to maintain an aggregate 40.0% (32.0% for foreign banks) of adjusted net bank credit or credit equivalent amount of off-balance sheet exposure, whichever is higher as priority sector advances. These include advances to agriculture, micro and small enterprises (including SRTOs, which constitute the largest proportion of our loan portfolio), micro enterprises within the micro and small enterprises sector, export credit, advances to weaker sections where the Government seeks to encourage flow of credit for developmental reasons. Banks in India that have traditionally been constrained or unable to meet these requirements organically, have relied on specialized institutions like us that are better positioned to or exclusively focus on originating such assets through purchase of assets or securitized and assigned pools to comply with these targets. Our securitized and assigned asset pools are particularly attractive to these banks as such transactions provide them with an avenue to increase their asset base through low cost investments and limited risk. Majority of our loan portfolio being classified as priority sector lending also enables us to negotiate competitive interest rates with banks, NBFCs and other lenders. In fiscal, 2011 and 2012 the total book value of loan assets securitized and assigned on an unconsolidated basis was Rs. 8,75,681.04 lacs, Rs. 10,20,361.35 lacs and Rs. 8,34,613.44 lacs, respectively. Unique business model and a track record of strong financial performance We primarily cater to FTUs and SRTOs and we believe we are the only financing institution in the organized sector providing finance to FTUs and SRTOs in the pre-owned commercial vehicle finance segment. Most of our customers are not a focus segment for banks or other NBFCs as these customers lack substantial credit history and other financial documentation on which many of such financial institutions rely to identify and target new customers. As the market for commercial vehicle financing, especially the pre-owned commercial vehicle financing, is fragmented, we believe our credit evaluation techniques, relationship based approach, extensive branch network and strong valuation skills make our business model unique and sustainable as compared to other financiers. In particular, our internallydeveloped valuation methodology requires deep knowledge and practical experience developed over a period of time, and we believe this is a key strength that is difficult to replicate. We provide finance to pre-owned commercial vehicle operators at favourable interest rates and repayment terms as compared to private financiers in the unorganized sector. Our retail focus, stringent credit policies and relationship based model has helped us maintain relatively low NPA levels. Our Gross NPAs as a percentage of Total Loan Assets were 3.14% as of March 31, 2012. Our Net NPAs as a percentage of Net Loan Assets was 0.45% as of March 31, 2012. Strong brand name We believe that the "Shriram" brand is well established in commercial vehicle financing throughout India. We believe that we are the only financing company in the organized sector with particular focus on the pre-owned commercial vehicle financing segment to FTUs and SRTOs in India. Our targeted focus on and the otherwise fragmented nature of this market segment, our widespread branch network, particularly in commercial vehicle hubs across India, as well as our large customer base has enabled us to build a strong brand. Our efficient credit approval procedures, credit delivery process and relationship-based loan administration and monitoring methodology have also aided in increasing customer loyalty and earn repeat business and customer referrals. Extensive experience and expertise in credit appraisal and collection processes 16
We have developed a unique business model that addresses the needs of a specific market segment with increasing demand. We focus on closely monitoring our assets and borrowers through product executives who develop long-term relationships with commercial vehicle operators, which enables us to capitalize on local knowledge. We follow stringent credit policies, including limits on customer exposure, to ensure the asset quality of our loans and the security provided for such loans. Further, we have nurtured a culture of accountability by making our product executives responsible for loan administration and monitoring as well as recovery of the loans they originate. Extensive expertise in asset valuation is a pre-requisite for any NBFC providing loans for pre-owned assets. Over the years, we have developed expertise in valuing pre-owned vehicles, which enables us to accurately determine a recoverable loan amount for commercial vehicle purchases. We believe a tested valuation technique for these assets is a crucial entry barrier for others seeking to enter our market segment. Furthermore, our entire recovery and collection operation is administered in-house and we do not outsource loan recovery and collection operations. We believe that our loan recovery procedure is particularly well-suited to our target market in the commercial vehicle financing industry, as reflected by our high loan recovery ratios compared to others in the financial services industry, and we believe that this knowledge and relationship based recovery procedure is difficult to replicate in the short to medium term. Experienced senior management team As on the date of this Information Memorandum, our Board consists of eight Directors, including representatives of Newbridge India Investments II Limited (TPG Group), with extensive experience in the automotive and/or financial services sectors. Our senior and middle management personnel have significant experience and in-depth industry knowledge and expertise. Most of our senior management team has grown with our Company and have more than 15 years of experience with us. Our management promotes a result-oriented culture that rewards our employees on the basis of merit. In order to strengthen our credit appraisal and risk management systems, and to develop and implement our credit policies, we have hired a number of senior managers who have extensive experience in the Indian banking and financial services sector and in specialized lending finance firms providing loans to retail customers. We believe that the in-depth industry knowledge and loyalty of our management and professionals provide us with a distinct competitive advantage. Our Strategies Our key strategic priorities are as follows: Further expand operations by growing our branch network and increasing partnership and co-financing arrangements with private financiers We intend to continue to strategically expand our operations in target markets that are large commercial vehicle hubs by establishing additional branches. Our marketing and customer origination and servicing efforts strategically focus on building long term relationships with our customers and address specific issues and local business requirements of potential customers in a particular region. We also intend to increase our operations in certain regions in India where we historically had relatively limited operations, such as in eastern and northern parts of India, and to further consolidate our position and operations in western and southern parts of India. The pre-owned commercial vehicle financing industry in India is dominated by private financiers in the unorganized sector. We intend to continue to strategically expand our marketing and customer origination network by entering into 17
partnership and co-financing arrangements with private financiers across India involved in commercial vehicle financing. In view of the personnel-intensive requirements of our operations, we continue to focus on growing our business by increasingly relying on partnership arrangements to effectively leverage the local knowledge, infrastructure and personnel base of our partners. Continue to develop our Automall business through our wholly-owned subsidiary Shriram Automall India Limited Through our wholly-owned subsidiary Shriram Automall India Limited, we have recently forayed into the business of developing hubs across India called "Automalls" which are aimed at providing (i) stock yard services for pre-owned and/or repossessed commercial vehicles, construction and other equipment, (ii) refurbishing pre-owned and/or repossessed commercial vehicles and construction and other equipment, (iii) providing a trading platform for the auctioning and sale of such commercial vehicles, construction and other equipment, and (iv) providing showrooms for refurbished pre-owned commercial vehicles. Our "Automalls" are being developed as a one-stop shop catering to the various needs of commercial vehicle and equipment users, banks, NBFCs and other lenders who wish to dispose of repossessed assets, automobile and equipment dealers and manufacturers. As on date, we have nine operational "Automalls", where we currently are providing stock-yard services, refurbishing of commercial vehicles and equipment, sale of commercial vehicles and equipment through auctions. We provide electronic touch-screen kiosks at our Companies various branch offices. We intend to gradually expand our "Automall" business by establishing between 50 and 60 "Automalls" in various parts of the country in the next 12 to 24 months. We are in the process of identifying and acquiring properties on a leasehold basis at various locations where we intend to establish our next "Automalls". Further, we propose to also provide online sale of commercial vehicles and equipment through a website, which is in the process of being developed. We also intend to provide valuation services and end-to-end "refurbishing" services relating to automobiles and equipment at our "Automalls" in the near future. We propose to work in close alliance with various banks and financial institutions, vehicle and equipment users, manufacturers, and dealers to consolidate and develop our "Automall" business to cater to their specific requirements. We believe the following are advantages of our "Automall" business: Results in fee-based income; Offers loan origination opportunities to our Company as it can finance sales of commercial vehicles sold through the Automall platform/s; Eases liquidation of assets repossessed by our Company; and Enables us to institutionalize valuation practices and create valuation bench marks. Consolidate and expand our construction and equipment finance business through our wholly-owned subsidiary, Shriram Equipment Finance Company Limited We have also forayed into the business of providing equipment finance in connection with both new and pre-owned construction and other equipment, through our wholly owned subsidiary, Shriram Equipment Finance Company Limited, which received a certificate of registration dated October 8,, to carry on the business of a NBFC (without accepting public deposits) from the RBI. As on March 31, 2011 and March 31, 2012, Shriram Equipment Finance Company Limited had disbursed equipment finance loans aggregating to Rs. 65,643.40 lacs and Rs. 164,061.63 lacs, respectively on an unconsolidated basis. We believe that infrastructure development and construction businesses are likely to benefit from the significant investment in infrastructure by the Government of India and state 18
governments and as well as by the private sector. Many of our customers have upgraded themselves and have become a sub-contractor and we believe that the construction equipment business segment will be a logical extension of our product portfolio for our existing customer base We believe that with the global meltdown many of the existing equipment financiers have stopped funding the construction equipment and consequently a vacuum has been created in the market. We aim to tap the existing customer base and the new set of customers. We believe that the construction equipment finance segment provides significant growth opportunity, and intend to increasingly focus on construction equipment finance as a distinct business segment. Diversify our product portfolio We are focused on leveraging our leadership in truck financing to expand our product portfolio, which now also includes financing for passenger commercial vehicles, multi-utility vehicles, three-wheelers and tractors. We expect this will enable us to offer new products to existing customers and expand our customer base. These products have strong synergies with the truck financing sector which is our primary business line. Further, by offering additional downstream products, such as vehicle parts and other ancillary loans, credit cards and freight bill discounting, we maintain contact with the customer throughout the product lifecycle and increase our revenues. The relationships we have developed with our customers provide us with opportunities for repeat business and to cross sell our other products and products of our affiliates. Continue to implement advanced processes and systems Our information technology strategy is designed to increase our operational and managerial efficiency. We aim to increasingly use technology in streamlining our credit approval, administration and monitoring processes to meet customer requirements on a real-time basis. We aim to continue to implement technology led processing systems to make our appraisal and collection processes more efficient, facilitate rapid delivery of credit to our customers and augment the benefits of our relationship based approach. We also believe deploying strong technology systems that will enable us to respond to market opportunities and challenges swiftly, improve the quality of services to our customers, and improve our risk management capabilities. Our Company s Financial Products Commercial Vehicle Finance We are principally engaged in the business of providing commercial vehicle financing to FTUs and SRTOs. FTUs are principally former truck drivers who purchase trucks for use in commercial operations and SRTOs are principally small truck operators owning between one and four used commercial vehicles. Our financing products are principally targeted at the financing of pre-owned trucks and other commercial vehicles, although we also provide financing for new commercial vehicles. Pre-owned commercial vehicles financed by us are typically between five and 12 years old. We also provide financing for other kinds of pre-owned and new commercial vehicles, including passenger vehicles, multi-utility vehicles, tractors and three wheelers. Vehicle Parts Finance and other ancillary activities Our customers also require financing for the purchase of vehicle parts in connection with the operation of their trucks and other commercial vehicles. We also offer financing for the acquisition of new and pre-owned vehicle equipment 19
and accessories, such as tyres, engines, chassis, and other vehicle parts. We have entered into an agreement with Axis Bank (formerly UTI Bank Limited) to market co-branded Visa credit cards to commercial vehicle operators for use in India and Nepal. We provide marketing assistance for the sourcing of prospective customers for such credit cards as well as assist in customer verification procedures. Axis Bank however retains the right to approve the application by any such customer. Access to such additional credit enables our customers to meet their short term financial requirements, including working capital requirements. IV. Brief history of our Company Our Company was incorporated as a public limited company under the provisions of the Act, by a certificate of incorporation dated June 30, 1979, issued by the ROC, Tamil Nadu, Chennai. Our Company commenced its operations, pursuant to a certificate of commencement of business dated October 9, 1979. Subsequently, our Company has obtained a certificate of registration dated September 4, 2000 bearing registration no. A-07-00459 issued by the RBI to carry on the activities of a NBFC under section 45 IA of the RBI Act, 1934, which has been renewed on April 17, 2007, (bearing registration no. 07-00459). The registered office of our Company is Mookambika Complex, 3 rd Floor, 4, Lady Desika Road, Mylapore, Chennai, Tamil Nadu 600004. Amalgamation of Shriram Investments Limited and Shriram Overseas Finance Limited with our Company The Hon ble High Court of Madras vide its order dated November 25, 2005, approved the scheme of arrangement and amalgamation of the erstwhile SIL, with our Company, ( SIL Scheme of Merger ). The appointed date for the SIL Scheme of Merger was April 1, 2005 and the record date for the purposes of re-organisation and issue of shares was December 21, 2005. The Hon ble High Court of Madras vide its order dated December 1, 2006, approved the scheme of arrangement and amalgamation of the erstwhile SOFL with our Company, ( SOFL Scheme of Merger ). The appointed date for the SOFL Scheme of Merger was April 1, 2005 and the record date for the purposes of re-organisation and issue of shares was February 9, 2007. Proposed Amalgamation of Shriram Holdings (Madras) Private Limited with our Company The Board of Directors of our Company and the board of directors of SHMPL have in their respective board meetings, both held on December 21, 2011, have passed resolutions, approving a scheme of amalgamation and arrangement, whereby the business and undertaking of our Promoter is proposed to be merged into our Company. The Competition Commission of India has approved the proposed SHMPL Scheme, pursuant to its order dated January 17, 2012. The NSE and the BSE have issued their no-objection to the proposed SHMPL Scheme, pursuant to their letters dated February 23, 2012 and February 22, 2012, respectively. In the court convened meetings of our equity shareholders and secured creditors of our Company both held on June 14, 2012, the SHMPL Scheme was approved by requisite majority of equity shareholders and unanimously by secured creditors present and voting at the respective meetings. Our Company has filed a petition dated June 25, 2012, before the Hon ble High Court of Madras, pursuant to Sections 391 to 394 read with Sections 100 to 104 of the Act seeking approval to the SHMPL Scheme. Pursuant to the proposed SHMPL Scheme, 9,38,72,380 equity shares of the face value of Rs. 10 each fully paid up of our Company, shall be issued and allotted, to the members of our Promoter whose names are recorded in the register of members of our Promoter on the specified date in connection with the proposed SHMPL Scheme, in the ratio of 313:124 i.e. 313 equity shares of the face value of Rs. 10 each fully paid up of our Company to be issued for every 124 equity shares of 20
the face value of Rs. 10 each fully paid up of our Promoter, held by the respective members. Accordingly, 9,33,71,512 (Nine crores thirty three Lacs seventy one thousand five hundred and twelve only) equity shares of the face value of Rs. 10 each of our Company, currently held by our Promoter shall stand cancelled pursuant to the SHMPL Scheme coming into effect. For further details, please refer to The Financial Results of the Company is as follows. (Rs In Lacs) Particulars FY 2011-12 FY -11 (A) FY 2009-10 (A) Gross income 5,89,387.66 5,42,965.40 4,49,588.96 Expenditure 2,46,120.55 2,27,195.95 2,24,681.22 Profit before tax Tax Profit after tax Add: Balance brought forward available for appropriation Total Assets & Loans and Advances Total Liabilities including Loans 1,88,091.02 1,84,892.76 1,32,459.12 62,346.06 61,904.76 45,147.38 1,25,744.96 122,988.00 87,311.74 1,40,584.25 93,001.65 58,309.25 2,66,364.36 215,989.65 145,620.99 35,77,747.76 3,157,149.63 2,693,557.57 29,78,516.51 2,670,404.82 2,313,027.74 Networth 5,99,231.25 486,744.81 380,529.83 Summary of last three audited Balance Sheet and Profit and Loss Account with qualifications by auditors FINANCIAL SUMMARY FY 2011-12 FY -11 (A) FY 2009-10 (A) EQUITY 22,632 22,618 22,554 NET WORTH 5,99,231.25 486,744.81 380,529.83 INVESTMENT IN SUBSIDARIES / AFFILIATES 29000 17000 21500 TOTAL DEBT OUTSTANDING - SHORT TERM (<1 YEAR) - OTHER DEBT 844051.97 19,88,171.00 18,45,991.00 21
GROSS INCOME OPERATING PROFIT (PBITD) 5,89,387.66 5,42,965.40 4,49,588.96 418,633 166142 123277 GROSS PROFIT (PBTD) 1,88,091.02 1,84,892.76 1,32,459.12 NET PROFIT (POST TAX) 1,25,744.96 122,988.00 87,311.74 AUDIT QUALIFICATIONS (if any) Not Applicable Not Applicable Not Applicable Interim Accounts, If any - Not Applicable Capital Structure History Details of Capital Structure The share capital of the Company as on 5 th May 2012 is set forth below: Share Capital Rupees in Lacs AUTHORISED SHARE CAPITAL 33,50,00,000 Equity Shares of Rs. 10/- each 33,500 2,00,00,000 Preference Shares of Rs. 100/- each 20,000 TOTAL 53,500 ISSUED 22,63,54,709 Equity Shares of Rs. 10 /- each 22,635.47 SUBSCRIBED 22,63,54,709 Equity Shares of Rs. 10 /- each 22,635.47 PAID-UP SHARE CAPITAL 22
Share Capital Rupees in Lacs 22,63,00,568 Equity Shares of Rs. 10/- each 22,630.06 48,000 Equity Shares of Rs. 10/- each, paid up Rs. 5/- each 2.40 TOTAL 22,632.46 NOTES: Of the total Equity shares an aggregate of 7,92,79,236 Equity Shares have been allotted for consideration other than cash of which: a. 6,06,33,350 fully paid-up Equity Shares of our Company have been allotted to the shareholders of SIL, pursuant to a scheme of amalgamation sanctioned by the Hon ble High Court of Madras vide its order dated November 25, 2005, in a ratio of 1 fully paid up Equity Share of our Company, for every 1 fully paid up equity share of the face value of Rs. 10/- each, of SIL; and b. 1,86,45,886 fully paid-up Equity Shares of our Company have been allotted to the shareholders of SOFL, pursuant to a scheme of amalgamation sanctioned by the Hon ble High Court of Madras vide its order dated December 1, 2006, in a ratio of 3 fully paid up Equity Shares of our Company, for every 5 fully paid up equity shares of the face value of Rs. 10/- each, of SOFL (i) Pursuant to the issuance of 64,95,420 Equity Shares on a rights basis on April 21, 1995, 64,84,910 Equity Shares were allotted, and 10,510 Equity Shares were kept in abeyance and not allotted, on account of unavailability of certain information in connection with certain applicants of Equity Shares in the said rights issue. Subsequently, 2,369 Equity Shares and 2,000 Equity Shares of the aforementioned Equity Shares kept in abeyance were allotted on November 11, 1995 and December 28, 1995, respectively. Currently, 6,141 Equity Shares are still kept in abeyance and pending allotment. (ii) 48,000 equity shares of Rs. 10/- each of SIL, on which Rs. 5/- was paid up for each of the said shares, were forfeited on January 17, 1997, ( Forfeited Shares ). Pursuant to the scheme of amalgamation sanctioned by the Hon ble High Court of Madras vide its order dated November 25, 2005, as detailed in para (a) above, the Forfeited Shares have become a part of the share capital of our Company, by operation of law. Changes in the authorised capital of our Company as on 5 th May 2012: 23