Originally appeared in The Economic Times on April 2nd, 2017
MUMBAI: The used-car industry, or its financing, isn’t foreign to a shortage economy. But for buyers of pre-owned motorcycles and scooters, India has never had an organized funding system – a gap in the market that four former Bajaj Auto executives are keen to fill.
Led by the erstwhile president of Bajaj Auto’s motorcycle business Srinivas Kantheti, the former executives have come together to establish WheelsEMI, a start-up that will lend money to India’s used two-wheeler market that is now pegged at 17 million units annually. It is a category left largely alone by the banks and non-banking financial companies (NBFCs), and is expanding in double digits annually.
The pace of growth drew K Srinivas and the three WheelsEMI co-founders to the opportunity, and their start-up has got series ‘A’ funding from Mauritius-based private equity major Elevar Capital, and the series B funding is slated for the second half of this year. Furthermore, WheelsEMI may look at tapping another PE company for further funding.
After leaving Bajaj Auto three years ago, Srinivas returned to consulting, but his passion was the automotive industry: Following the ideals of Bajaj, Srinivas didn’t want to do anything that was `me too’ and wanted a differentiated business proposition for the industry that his former employer had helped kick-start about five decades ago by bolting together motor-scooters and auto-rickshaws.
Srinivas spotted the opportunity in the financing of used two-wheelers, noticing that only 2-3% of the pre-owned two-wheeler market is addressed by formal financing – and that too by online portals. Along with V. Karunakaran, who is the joint MD of the firm, Srinivas decided to conduct a market research with A C Nielsen: The findings were positive, and Srinivas and his team banked on the research output to enter the financing of used two-wheelers.
They acquired Vardnarayan Savings and Investment Co Pvt Ltd., a small finance company from Maharashtra’s Nanded with a loan book of Rs 35 lakh. The four executives infused Rs 4 crore into the company before reaching out to the Mauritius-based PE fund Elevar Capital for funding. Within three months, they got the funding and all the clearances from the central bank.
The four promoters include K Srinivas and V Karunakaran, who has dealt with two-wheeler financing over two decades at ICICI, and Bajaj. The third promoter is C. Phaneendra Kumar, an agricultural engineer and a rural-sector expert who was the key architect of the direct cash collection model at Bajaj Auto Finance. Kumar is also considered an expert on underwriting credit for small-ticket borrowing. Ratheesh Bharatan is an expert at the back end, setting up the IT, processing of loans, and the credit collection models.
An industry veteran, Srinivas knows all too well that the margin for error is very little, as the ticket size is small and the borrower will likely be an individual with either a weak credit history, or no history at all. To add to the concern over borrower profile, they also will have to deal with many unorganised dealers.
“Operationally it is a very challenging game. You need to keep the cost under control, and on a ticket size of Rs 35,000, we will have to check a customer’s history, CIBIL record, etc. So one needs to know how to operationally run a very tight ship,” says Srinivas, who has advised companies on reining in operating costs.
The company has started with four cities, Pune, Nagpur, Bengaluru and Chennai. The company aims to build these markets before expanding to 70 branches across India in about three years. The company’s financial projects show likely funding of 10,000 bikes in the first year, expanding to 1.5 lakh two-wheelers annually in three years, and half a million bikes in five years, with a book size of Rs 1,750 crore.
The company would target young factory workers, carpenters, or electricians, and will primarily tap into outlets selling pre-owned two-wheelers.