Do the Germans have a word to describe the feeling of satisfaction in getting things right when everyone else before you struggled? If they did, that's probably what the two northwest India-based used commercial vehicle lenders Kogta Financial (India) Ltd and SK Finance Ltd must be feeling.
Unlike new commercial vehicles, financing the purchase of used commercial vehicles is a brutal business. That's why banks have chosen to corner the former, leaving the used CVs segment to the legions of unorganized lenders. In such an arid environment, Kogta and SK have been growing at a compound annual growth rate of 40% for the last five years.
The growth in loans is only one part of its story, though. The two NBFCs have also managed to duck the non-performing asset bomb that ripples through this sector with the help of a sound collection strategy.
Larger lenders such as Shriram Transport Finance Company saw a gross NPA ratio of 7.82% for the quarter ended September 2021. This was 4.4% for Kogta and 3% for SK for the same period.
So far, these two companies mostly finance borrowers in Rajasthan and Gujarat. They are sizable markets for commercial vehicles on account of transporters being concentrated in the region, limited railway access, and the size of the states themselves. That explains the size of Kogta and SK’s assets under management (AUM).
Kogta's AUM for the quarter ended September 2021 stood at Rs 1,270 crore ($171 million), while SK’s was at Rs 3,155 crore ($424 million). They have an expansion opportunity here, considering the vacuum left in this space after Magma Fincorp, one of the largest lenders of used CVs, exited this business after its sale to Poonawalla Fincorp. But that expansion can come at the cost of quality underwriting because building market intelligence across geographies is a tough one.
Meanwhile, there’s an unlikely joker in the pack in the form of e-commerce, which could continue to tip the scales in favour of Kogta and SK's growth. Read our today’s article to know how these two low-profile lenders are braving all odds at last...