By Prakash Agarwal

India Ratings and Research (Ind-Ra) has assigned Shriram Transport Finance Company Limited's (STFC) additional proposed INR40bn non-convertible debentures (NCDs) an 'IND AA+' rating. The Outlook is Stable. A full rating breakdown is at the end of the commentary.

KEY RATING DRIVERS

The ratings are factors in STFC’s dominance in the Indian used commercial vehicle (CV) financing market with limited meaningful organised competition in its niche segment. The company is focusing on buckets of median- to above-average yields, which is likely to reduce volatility in credit costs. The ratings factor in the company’s healthy capitalisation, reasonable operating metrics and average liquidity. The ratings however also factor in the company’s largely institutional funding, though its non-institutional funding has increased and it now has a sizeable proportion of retail deposits. 

STFC has gained strong skill set through its long experience and has managed its credit costs within a moderate range despite operating in a weak credit profile customer category. The company seems to be consolidating its portfolio towards above-average yield bucket and simultaneously vacating low yield and very high yield segments which could lead to less volatile credit costs. At the same time, the company’s focus on low ticket lending seems to be strengthening.  The build-up of regulatory pressure, changing dynamics of CV industry, higher contribution of rural markets in incremental growth, greater availability of lower vintage used vehicles together with 8% spread cap on the asset eligibility for securitisation are leading to this transition. Having said that, STFC faces higher competition in this segment as many non-banking financial companies are trying to expand in this space. 

To read a detailed rating rationale, please click
here


RATING SENSITIVITIES

Positive: Though unlikely in the medium term, the company’s ability to sharply diversify its funding profile with significantly large retail funding and significantly increase credit costs buffers, while maintaining the dominant franchise in the used CV financing segment could be positive for the ratings. 

Negative:
Any sharp rise in the credit costs from an unexpected increase in slippages, weakened funding or liquidity and/or a significant loss of franchise could result in a negative rating action. 


COMPANY PROFILE

STFC is the largest non-bank finance company in India in the asset finance segment. It is the flagship company of Chennai-based Shriram group of companies, which operates in consumer finance, insurance and infrastructure and energy segments.

S
TFC’s ratings: 
- Long-Term Issuer Rating:  at ‘IND AA+’; Outlook Stable
- Short-Term Issuer Rating:  at 'IND A1+'
- INR30bn long-term retail NCDs:  at ‘IND AA+’; Outlook Stable
- INR135bn long-term NCDs:  at ‘IND AA+’; Outlook Stable
- INR120bn long-term bank loans:  at IND AA+; Outlook Stable
- INR26.2bn lower tier II sub-debt:  at IND AA+; Outlook Stable
- INR10bn short-term bank loans:  at 'IND A1+'
- INR15bn short-term debt/commercial paper programme:  at 'IND A1+'
- Term deposit rating:  at ‘IND tAA+’; Outlook Stable



SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in.The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

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Analyst Names

  • Primary Analyst

    Prakash Agarwal

    Director and Head Financial Institutions
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th floor, West Wing Plot C-2, G Block. Bandra Kurla Complex Bandra (East), Mumbai 400051
    +91 22 40001753

    Media Relation

    Mihir Mukherjee

    Manager Corporate Communications and Investor Relations
    +91 22 40356121