ICRA has assigned the rating of 'AA' with 'Stable' outlook to Rs 500 million subordinate debt programme of Shriram Transport Finance Company (STFC). ICRA also has a rating outstanding of MAA+ with 'Stable' outlook to the fixed deposit programme of the company.
The rating takes into account STFC's dominant market position, its strong customer outreach and franchise in the pre-owned commercial vehicle (CV) financing market and its ability to maintain a favorable earning profile by managing its asset quality while operating in perceived riskier and higher yielding Small Road Transporter Operator (SRTO) segment. These positives get offset to an extent by the concentration of STFC's credit portfolio to the CV segment, which exposes it to industry specific risks, and the lack of diversity in its revenue stream. ICRA has also taken note of the challenging operating environment which has resulted in some weakening in asset quality indicators of the company with the gross NPA% increasing to 3.56% in Dec-13 against 3.20% in Mar-13; going forward ability of STFC to exercise a control over its delinquency level in a operating environment where CV operators are facing load availability and liquidity pressures would be an important rating consideration. Solvency (net NPA as % of net worth) indicators of the company however remain at a comfortable level of 3.5% in Dec-13.
STFC enjoys a strong outreach operating out of a pan India branch network of 630 branches†; the company has also been expanding its presence in relatively under penetrated rural regions and has setup 575 rural centers as on December 2013 (against 350 in March 2013). As on December 31, 2013 STFC had total vehicle managed advances of Rs. 52,198 crore and registered a y-o-y growth of 12.7%. Growth for the company is primarily emanating out of its used vehicle portfolio, which registered a y-o-y growth of 22.9% as on December 31, 2013. On the other hand STFC's new vehicle portfolio has registered a sharp y-o-y decline of 26.7% as on Dec. 31, 2013 on the back of a reduction in sales volumes of new CVs during the period and also on account of a conscious decision by the company to bring down fresh originations in the segment given the higher level of load availability and cash flow challenges faced by new CV operators in the current operating environment.
The used vehicle segment has historically been the key business segment for the company and accounted for around 86.6% of total managed advances as on Dec. 31, 2013. As on Dec. 31, 2013 close to 40% of total managed advances was deployed in the HCV segment, 30.1% in the LCV segment, 22.3% in the Passenger Vehicle segment, 5.4% in the Farm vehicle/tractor segment and 2.2% in the form of other advances. In terms of customer mix STFC focuses on the higher yielding but perceived riskier Small Road Transport Operators (SRTO) and First Time User (FTU)/ First Time Buyer (FTB) customer segments.
Shares of the company gained Rs 8.75, or 1.21%, to trade at Rs 734. The total volume of shares traded was 17,244 at the BSE (1.51 p.m., Thursday).
