Shrachi Securities - Rs.47.00

Incorporated in 1989, Shrachi Securities Ltd (SSL) is the flagship financial services company of the Shrachi Group, which has diversified interest in Real Estate, Engineering, IT, Hospital, Packaging, Alcohol etc. SSL offers a wide range of financial products and services from financing passenger cars and light commercial vehicles to heavy commercial vehicles and construction equipment. Earlier, the company was known as Shrachi Infrastructure Finance and only recently acquired its current name. Today, SSL has emerged among the 10 biggest commercial vehicle financing companies in India. The company operates through 57 branches covering 12 major states and has a consortium of 12 banks led by Bank of Baroda.

SSL does not just finance in its own right; it finances commercial vehicles and construction equipment jointly with Citicorp and HDFC Bank leveraging their brand equity. Interestingly today SSL is the largest alliance member for HDFC and second largest for Citicorp on a national basis. Its main income is earned in the form of origination fees and collection charges (linked to collection efficiency) since interest spreads are typically low with yields on these assets relatively low compared to SSL’s own cost of funds. The fee based earning nature of this business is a positive as it partially insulates SSL from the yield volatility prevalent in commercial vehicle financing market. In short, it’s a professionally well-managed company with NPA level of around 1.50% only against the industry average of more than 5%. SSL also has a 100% subsidiary, Shrachi Auto Pvt. Ltd., which has the dealership of Ashok Leyland vehicles in Jharkhand and Bajaj Tempo in Ranchi, the capital of Jharkhand

For FY05, SSL’s disbursement grew to Rs.540 cr. against Rs.303 cr. in FY04 registering growth of 79%. Its capital adequacy stood at above 20% compared to the minimum 12% required by RBI. Its total income grew by 30% to Rs.25.40 cr. whereas its NP zoomed 140% to Rs.7.20 cr. posting an EPS of Rs.8.50 on its current equity of Rs.8.50 cr. and it declared a dividend of 15% for FY05. Due to the increasing importance of infrastructure financing, the company has proposes to expand its infrastructure funding operations for which it is planning to raise capital through preferential allotment and other means like FFCB, ADR etc, which will dilute its equity substantially in future. For FY06, the company may report a total revenue of Rs.35 cr. and NP of Rs.8.50 cr. Aggressive investors can accumulate this scrip with a price target of Rs.75 (65% return) in 12~15 months.