Wint Wheels- How value of underlying vehicles increases over time!

Financial Engineering and innovation in managing risk is at the heart of the assets that we bring to our retail investors. However, I am pleasantly surprised by the beautiful risk management our Assets team brings.

The next asset( Wint Wheels March asset) is a ₹ 20 Cr asset. It is a pool of vehicle loans, and the market value/ selling value of the underlying vehicles is ₹ 32 Cr. ( 1.6 Times of ₹ 20 Cr). So if all vehicles need to be sold, the value realised will be ~ ₹ 32 Cr. Even if there are some costs involved, the final price will be more than 30Cr. That gives great safety to the asset.

Here is what I was blown away with: as time progressed, the value of underlying vehicles actually increases! Even by a very, very conservative estimate, the value of underlying vehicles will grow slowly and regularly from ₹ 32 Cr to ₹ 37Cr by the end of two years! Here is the graph of how it will increase over time:

Value of Collateral over time( Till Maturity)

This is the beauty! Even if vehicle value is depreciating, the overall value of all Vehicle is increasing. Surprising, right?

Let me explain!

Every month, vehicle value is depreciating at the individual loan level, but loan outstanding is also coming down. Vehicle life is ten years, so it depreciates over ten years, but loan tenure is 3–4 years, so the loan outstanding goes down much faster.

For simplicity, we will assume a vehicle value of 5 Lacs, and it depreciates 0.75% per month, and the loan outstanding is 4L, and it decreased by 2% a month.

Principal Outstanding(POS) and Vehicle Value for individual loan

Now, let’s look at how the portfolio is. For the ₹ 20 Cr pool, the NBFC has given loans worth ₹ 24 Cr. The current portfolio has 861 vehicle loans in it.

After the first month, some principal will be paid back. Say ₹ 50 L. But NBFC has to maintain a loan pool of ₹ 24 Cr for Wint investors. So NBFC would give new loans of ₹ 50L. So at any point, the loans outstanding will always be ₹ 24 Cr.

For every loan, the principal repayment is much faster than depreciation. And as time progresses, more and more vehicle loans are added to the portfolio, so the Vehicle’s overall value keeps increasing.

According to our pessimistic calculation, the value of vehicles will be ₹37Cr after two years.

Here is a snapshot of the basic excel sheet.

Feel free to reach out to us if you’ve any queries!


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