AU Financiers: Making it Easy to Buy Second-Hand Commercial Vehicles

Despite the economic slowdown, the finance company has managed to attract investor interest

After studying law I vectored towards journalism by accident and it's the only job I've done since. It's a job that has taken me on a private jet to Jaisalmer - where I wrote India's first feature on fractional ownership of business jets - to the badlands of west UP where India's sugar economy is inextricably now tied to politics. I'm a big fan of new business models and crafty entrepreneurs. Fortunately for me, there are plenty of those in Asia at the moment.

AU Financiers: Making it Easy to Buy Second-Hand Commercial Vehicles
Image: Prasad Gori for {Forbes India}
Sanjay Aggarwal, promoter and managing director, Au Financiers

In Rajasthan’s towns and cities, getting loans for second-hand trucks or three-wheelers is no longer hard. But, in 1995, when Au Financiers had just started, borrowing at reasonable interest rates was tough. Moneylenders charged usurious rates while banks were wary of lending to buyers who lacked documentation. Consumers often found themselves in a fix.

Targeting this niche, Au Financiers (incidentally, Au is the periodic symbol for gold) started with a small branch in Jaipur, focusing on lending that would enhance livelihoods. That is, by giving loans for trucks and three-wheelers. Growth was slow till 2002 but the initial phase placed the company on a solid wicket for the massive expansion that was to take place in the next 10 years.

In 2003, Au Financiers tied up with HDFC Bank to provide loans in regions the big housing financier could not reach. The company has since grown and now lends to small businesses as well as for housing. Its Rs 4,200-crore loan book has enabled it to raise money from blue-chip names like Motilal Oswal, IFC, Warburg Pincus and ChrysCapital.
 
The man behind it

In 1995, after Sanjay Aggarwal, Au Financiers’ promoter and managing director, took his chartered accountancy exams, he realised he didn’t want to work for anyone. Instead, he wanted to create something on his own and the finance business seemed to be synergistic with his qualifications.

Raising money was a problem but Aggarwal got his first break with high net worth individuals who were willing to invest. “It was frustrating to be in a business that was growing slowly,” he admits. Then, in 1997, two years after he set up shop, non-banking finance companies (NBFC) came under a cloud after the CRB Group promoted by CR Bhansali was found guilty of fraud and went bust. But Aggarwal stuck it out; he says he was more interested in understanding credit patterns and behaviour. For instance, why do people in certain regions not pay back while others do? What are prudent provisioning norms? How does a business develop tools to assess creditworthiness?

This thought process enabled Aggarwal to grow Au Financiers into a sustainable business. Today, it is considered a rising star in the financial sector. It has expanded to 10 states and Aggarwal has even instituted a stock ownership plan for his employees. His aim is to build an organisation that is known for its professionalism and has the same corporate governance standards as HDFC.

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Why it is a gem
Au Financiers has had nearly two decades to understand customers. This is not an advantage that a competitor can replicate overnight. Also, it belongs to an industry where capital is always in short supply, so NBFCs often tend to cut corners. This impacts performance as the business grows—Au Financiers has been careful to avoid this path.

 A majority of the loans it provides qualify as priority sector allowing it to raise money at cheaper rates. Its cost of funds has fallen to 11 percent, among the lowest in the industry. It lends at an average of 18 percent, making it one of the cheaper options. Au Financiers has also created processes such that it can grant loan approvals within 24 hours.

Why it was hidden
The company had been away from the limelight till recently, when it received an investment from Motilal Oswal Private Equity. Until then, given its size and scale, Au Financiers would get lumped with the hundreds of finance companies that are unable to achieve significant growth. Plus, it has operated mainly in smaller towns and cities.

Also, in the NBFC space, as far as the consumer is concerned, there is little differentiation apart from cost. As a result, smaller companies usually do not get much brand recognition. But now, as it expands its footprint, Au Financiers seems to have what it takes to reach the levels that justify spends on brand building. Further, given the strides the business has made in the last two years, it has the scope to rival its larger counterparts. A listing is also on the cards in three to four years.  

Risks and challenges

A persistent issue, according to Aggarwal, is the lack of trained manpower. Companies in this space often have to poach from rivals, driving up expenses. Then there is the lack of scale which, while not unique to Au Financiers, is an impediment to rapid growth as costs don’t reduce fast enough. Higher-priced loans mean consumers are tempted to look elsewhere. Though the company has a loan book of Rs 4,200 crore in 2012-13, it targets Rs 12,000 crore in the next five, which means these issues need quick addressing.

The biggest challenge the company faces is a slowing economy. “The economy is going through an extended trough,” says Aggarwal. Unlike previous downturns, where recovery was quicker, truck sales, a leading indicator of growth, slowed a year ago and show no signs of picking up. At times like this, maintaining asset quality becomes difficult. Au Financiers has seen some loans go bad and gross non-performing assets (NPAs) have risen from 0.2 percent in March 2012 to 0.5 percent in March 2013. Aggarwal expects NPAs to peak by September and stay steady thereafter.

(This story appears in the 06 September, 2013 issue of Forbes India. You can buy our tablet version from Magzter.com. To visit our Archives, click here.)

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  • Rajesh Kumar

    The great perform in business line and amazing growth in market. financiers build our #miracle .

    on Mar 15, 2016
  • Rajdeep

    I am proud to be from AU family

    on Dec 29, 2015
  • Gajanan Lohate

    Great...

    on Aug 7, 2015
  • Ishu Kumar

    I proud to be member of Au financiers

    on Jul 22, 2014
  • Anil Kumar Sharma

    i am proud to a au family

    on Mar 21, 2014
  • A.krishnaprasad Adidam

    This is krishna prasad from Andhra pradesh vizag location really its a best place to hard worker n honest people, why this AU finance not exlansion in AP.Actually in AP also good potential market for veh finance.

    on Mar 7, 2014
  • Vinod Gupta

    Very inspiring story

    on Nov 4, 2013
  • Parimal Pithwa

    i proud to be a part of au financiers

    on Oct 15, 2013
  • Milind

    amazing story of Au finance ltd which inspiring new generation like me for growing up.................

    on Oct 15, 2013
  • Satya Prakash Dubey

    I am very much glad to know about the company.. and being part of makes me feel more proud person.. wanna thank a lot of people for making me work with such organisation where motto of work is HONESTY AND HARDWORK..

    on Oct 8, 2013
  • Shailender

    there is no substitute of hard work, sir I salute your talent..

    on Sep 30, 2013
  • Yogesh Avasthi

    I proud to be member of Au financiers.

    on Sep 25, 2013
  • Maheshpareek Jaipur

    Main bada Sobhagyashali hun ki sanjay sir mere \" GURU \" hain Samashya ki jad (Bottom) tak jana unki aadat hai aur samadhan unka Dharm unki ek line hamesha yad rahati hai \" Jis post per aap bathe hain wahan ki problems ka solution aapke pass Nahin hai to aap us post ke layak bhi nahin hai \"

    on Sep 23, 2013
  • Pareshkumar Aghera

    Company Grow Day to Day, But I think needs to company having Best employee policy i.e incentive, salary, expense. Old employee get promotion yearly on dedication, profitable buz. Having Dedicated, profitable and knowledgeable employees. Mean company need floor level strong/Mkt Exe.

    on Sep 9, 2013
  • Shivam Saxena

    proud to be a member of Au Family

    on Sep 9, 2013
  • Kulwant Sirohi

    I proud to be member of Au financiers.

    on Sep 9, 2013
  • Bikash Ganguly

    The best experience of my life with the best people around me as a family .... Really hats off To Sanjay Sir for such an initiative . Blessed to be a part of your team .

    on Sep 9, 2013
  • Harish Rao

    Its been incredible while many of the big players in the sector are just managing to survive Au is growing like any thing, the major magic behind this is the greatest leadership of Mr Sanjay Aggarwal. SALUTE to him.

    on Sep 8, 2013
  • Vivek Holani

    This is an incredible recognition. When big NBFC\'s are still striving to establish, AU has not just established but proved to be a hidden gem. I am proud to be part of AU family. Kudos to Sanjay Sir\'s who only could made this achievement possible. I believe that all those who are associated with AU group will now be more possessive for the group. Remember this is just a start, we have to collectively work upon to go beyond excellence in every field. My best wishes to entire AU Family.

    on Sep 6, 2013
  • Mahesh Kumar

    I Proud to be a member of Au Family.

    on Sep 6, 2013
  • Ram Ratawa

    great !!! happy that i am a part of AU which is best leadership team in Indian market. congratulation to all AU family

    on Sep 6, 2013
  • Ram Prakash Inaniya

    I Proud to be a member of Au Family. main sanjay sir ko apna adarsh manta hu aur main bhi unki tarah hi ek self business man banna chahta hu main bhi Bahut aage badana chahta hu , aur main sanjay sir ko unki kamyabi ke liye bahut-bahut Bhadhai sir aapko.

    on Sep 6, 2013
  • Yogesh Laddha

    Great Company with one of the best leadership team in world. Proud to be part of Au Group.

    on Sep 6, 2013
  • Snehal Patel

    M feeling proud to be As a part of Au financiers, The company is one of the best growing company in the world and the management people of this company are very down to earth as well as supporting

    on Sep 6, 2013
  • Sunny Attar

    Hidden Gem....truly said.... One of the best finance company in Indian market, who not only lends, but cares for its customer

    on Sep 6, 2013
  • Anil Kumawat

    My Respected person is Mr, Sanjay Agarwal , main sanjay sir ko apna adarsh manta hu aur main bhi unki tarah hi ek self business man banna chahta hu main bhi nahut aage badana chahta hu , aur main sanjay sir ko unki kamyabi ke liye say,congratulation sir,

    on Sep 6, 2013
  • Sapna Kumawat "arya"

    Proud to be a part of Au.. bcz of the friendly attitude of managment every employee consider Au as his/her \"Second Home\"...

    on Sep 6, 2013
  • Jaspal Singh

    I proud to be member of Au financiers.

    on Sep 6, 2013
  • Pankaj Mohata

    proud to be a member of Au Family

    on Sep 6, 2013
  • Santosh P

    kindly let me know if there is any opportunity to source business from Pune and rest of Maharashtra areas..

    on Sep 5, 2013
  • Chanchal Soni

    Proud to be a member of AU family. Our efforts, attitude, sincerity, goals are very clear to set a milestone in M.P.

    on Sep 5, 2013
  • Hanu Sunkesula

    Good growth short period in finance industry why can\'t u expand ur business to south region as said by Mr.Venkat tanneeru huge market for used vehicle finance with good yield the existing financiers are maintaining I think this is the right time to enter into south market especially into AP

    on Sep 5, 2013
  • Venkat Tanneeru

    iam very much impressed about your company growth and working system i have more than 10 yrs of experience in finance industry ..hope for expansion of new branches towards south india especially in Andhra Pradesh . if possible any oppertunity to source business from hyderabad

    on Sep 5, 2013
  • Harsh Loomba

    Proud to be a member of AU family. Our efforts, attitude, sincerity, goals are very clear to set a milestone in Punjab.

    on Sep 5, 2013
  • Dibya Ranjan

    What a nice article!!! I know very well about this company as I worked for nearly 4 months in HR. The company is one of the best growing company in the world and the management people of this company are very down to earth and they never think that they are MD or ED or business head.. Every body in this company including MD and ED Sir are very clear in their goal to become the biggest player in Finance industry. However they not only put importance for company growth but also on their manpower growth. The person who leave this organization are the biggest fool i have ever seen. The company is full of star performers which make the MD Sir the rising star.. Hats up to the MD Sir and Management for all their efforts..However I am not a part of this company now but I would love to see this company as the biggest financiers in India..Wish you all the best AU Group members..

    on Sep 4, 2013
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