By Pankaj Naik

India Ratings and Research (Ind-Ra) has rated Shriram Transport Finance Company Limited’s (STFC) retail non-convertible debentures (NCDs) as follows:

Instrument Type

Date of Issuance

Coupon Rate

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Retail NCDs

-

-

-

INR50,000

IND AA+/Stable

Assigned

KEY RATING DRIVERS

Market Dominance in Used CV Financing Space: STFC is by far the largest financier of used vehicles in India. Ind-Ra estimates STFC to have three-fourth of the market share among the organised used vehicle financing space. STFC possesses strong skills in financing commercial vehicles (CVs) through its vast experience and managing credit costs within limits, despite operating mainly in an arguably weak credit profile customer category in the used vehicle segment. STFC’s expertise lies in valuation of the used assets and effective collection mechanism helping in managing credit costs. However, STFC faces tough competition in the used CV financing space, as many non-banking finance companies are trying to expand into this space.

Asset Quality:
 STFC transitioned to 90 days non-performing asset recognition norm in 4QFY18, which led to a rise in gross non-performing asset ratio to 9.2% (FY17: 8.2%, 120+days past due). Credit cost also increased to 414bp in FY18 (FY17: 380bp). STFC focuses on shifting its portfolio towards newer used vehicles, and consequently focus on stronger credit profile customer. This transition has led to pressure on yields; however, Ind-Ra expects this to reduce credit cost volatility. STFC has expanded at a robust pace in rural geographies. Better monsoons and uptick in rural infrastructure activity can boost the utilisation levels of commercial vehicles, thereby leading to better cash flows. However, a rise in fuel price without a commensurate increase in freight rates could compress borrower’s profitability, and hence their loan repayment capacity.

Reasonable Capitalisation:
STFC is reasonably capitalised with tier I ratio of 14.2% in 4QFY18 (4QFY17: 15.2%). With a growth target of 18% for FY19, Ind-Ra believes internal accruals would be largely sufficient to support growth. The company plans to operate with moderate leverage along with a policy to maintain tier I ratio above 14% on a steady state basis. 

Comfortable Liquidity:
STFC has a positive cumulative surplus in the one-year bucket of structural liquidity statement as on 31 March 2018. The company also maintains sizeable unutilised bank lines (INR40 billion-45 billion). However, STFC has diluted its policy of maintaining large on-balance sheet liquidity by way of cash and investment in liquid mutual funds, which could have provided strong buffers in the event of a sudden liquidity crisis. STFC endeavours to maintain a matched asset liability maturity profile by restricting its reliance on short-term borrowings which would not exceed 7%-8% of the total borrowings.  

Moderate Profitability:
The company’s profitability remained under pressure over the past few years (pre-provisioning operating profit/credit costs in FY18: 1.8x, FY17: 1.8x; FY11-FY16: average 3.2x) due to a decline in securitisation income and a rise in credit costs. Ind-Ra believes competitive pressures and the transition to newer used vehicles could lead to a compression in yields in FY19. Also, the hardening of interest rates can lead to a rise in STFC’s borrowing cost, further compressing its margins. STFC’s accelerated expansion in rural geographies that offer higher yields can support margins; however, ability of the company in managing credit cost remains to be seen.  


RATING SENSITIVITIES

Positive: Significantly strengthened stable funding profile which could emerge through enhanced granular retail funding or/and significantly increased credit costs absorbing buffers, while maintaining the dominant franchise in the used CV financing segment could be positive for the ratings.

Negative
: Through the cycle rise in credit cost leading to depletion in operating and/or capital buffers, reduced resource raising ability impacting the liquidity, and/or a significant loss of franchise could result in a negative rating action.


COMPANY PROFILE

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

 

FINANCIAL SUMMARY

 

Particulars

FY18

FY17

Total tangible assets (INR million)

880,414

740,480

Total tangible equity (INR million)

121,433

109,399

Net income (INR million)

15,680

12,573

Return on average assets (%)

1.93

1.77

Tier 1 capital (%)

14.2

15.2

Source: Company


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

26 March 2018

31 March 2017

20 June 2014

Issuer rating

Long-term/Short-term

-

IND AA+/Stable/IND A1+

IND AA+/Stable/IND A1+

IND AA+/Stable/IND A1+

IND AA+/Stable/IND A1+

Non-convertible debentures (NCDs)*

 

Long-term

INR225,000

IND AA+/Stable

IND AA+/Stable

IND AA+/Stable

IND AA+

Bank loans

Long-term/Short-term

INR130,000

IND AA+/Stable/

IND A1+

IND AA+/Stable/

IND A1+

IND AA+/Stable/IND A1+

IND AA+/ IND A1+

Subordinated debt*

Long-term

INR46,200

IND AA+/Stable

IND AA+/Stable

IND AA+/Stable

IND AA+

Short-term debt/CP programme

Short-term

INR75,000

IND A1+

IND A1+

IND A1+

IND A1+

Term deposit

Long-term

-

IND tAA+/Stable

IND tAA+/Stable

IND tAA+/Stable

IND tAA+

*Details are in Annexure below

ANNEXURE

ANNEXURE – SUBORDINATED DEBT

ISIN

Date of Issuance

Coupon Rate

Maturity Date

Size of Issue (million)

Rating/Outlook

INE721A08CV0

1 December 2016

8.50%

30 May 2024

INR400

IND AA+/Stable

INE721A08CW8

1 December 2016

8.50%

1 December 2026

INR600

IND AA+/Stable

INE721A08CX6

29 December 2016

8.50%

29 December 2026

INR750

IND AA+/Stable

INE721A08CY4

17 October 2017

8.20%

15 October 2027

INR 2,890

IND AA+/Stable

 

 

 

Total utilised

INR4,640

 

 

 

 

Total unutilised

INR41,560

 

 

 

 

Total

INR46,200

 

 

 

ANNEXURE –NCDs

ISIN

Date of Allotment

Coupon

Maturity Date

Size of Issue (million)

Rating/Outlook

INE721A07HP3

21 July 2014

10.00%

19 July 2019

INR5,000

IND AA+/Stable

INE721A07HQ1

5 August 2014

10.00%

5 August 2019

INR5,000

IND AA+/Stable

INE721A07HR9

28 August 2014

10.00%

28 August 2019

INR2,500

IND AA+/Stable

INE721A07HV1

12 September 2014

10.00%

12 September 2019

INR1,250

IND AA+/Stable

INE721A07HY5

18 September 2014

10.25%

18 September 2024

INR3,000

IND AA+/Stable

INE721A07HZ2

19 September 2014

9.75%

19 September 2019

INR500

IND AA+/Stable

INE721A07IA3

19 September 2014

9.85%

19 September 2021

INR500

IND AA+/Stable

INE721A07IG0

10 October 2014

10.25%

10 October 2024

INR4,750

IND AA+/Stable

INE721A07II6

31 October 2014

10.10%

31 October 2024

INR250

IND AA+/Stable

INE721A07IN6

11 November 2014

9.55%

11 June 2018

INR500

IND AA+/Stable

INE721A07IO4

13 November 2014

10.00%

13 November 2024

INR3,580

IND AA+/Stable

INE721A07IR7

28 November 2014

9.90%

28 November 2024

INR1,000

IND AA+/Stable

INE721A07IS5

28 November 2014

9.95%

28 November 2019

INR750

IND AA+/Stable

INE721A07JB9

5 January 2015

Benchmark + Spread (payable monthly), i.e. 10% - 0.10% resulting into yield of 9.90% payable monthly

5 January 2022

INR5,000

IND AA+/Stable

INE721A07JC7

19 January 2015

9.35%

17 January 2020

INR150

IND AA+/Stable

INE721A07JE3

4 February 2015

9.15%

4 February 2020

INR300

IND AA+/Stable

INE721A07JF0

24 February 2015

9.3%^

19 July 2018

INR450

IND AA+/Stable

INE721A07JP9

17 April 2015

9.15%

13 March 2019

INR3,000

IND AA+/Stable

INE721A07JR5

17 August 2015

8.85%^

28 August 2018

INR170

IND AA+/Stable

INE721A07JS3

4 December 2015

8.80%

4 December 2020

INR150

IND AA+/Stable

INE721A07JT1

14 December 2015

8.75%^

11 April 2019

INR350

IND AA+/Stable

INE721A07JU9

22 December 2015

8.75%

21 December 2018

INR100

IND AA+/Stable

INE721A07JV7

15 March 2016

9.10%

15 March 2019

INR100

IND AA+/Stable

INE721A07JW5

18 March 2016

9.25%

18 March 2021

INR1,000

IND AA+/Stable

INE721A07JX3

18 March 2016

9.30%

18 March 2026

INR1,000

IND AA+/Stable

INE721A07KA9

29 March 2016

9.25%

29 March 2021

INR750

IND AA+/Stable

INE721A07KB7

29 March 2016

9.30%

27 March 2026

INR1,450

IND AA+/Stable

INE721A07KC5

13 April 2016

9.15%

13 April 2021

INR5,160

IND AA+/Stable

INE721A07KD3

13 April 2016

9.22%

13 April 2026

INR1,790

IND AA+/Stable

INE721A07KE1

22 April 2016

9.20%

22 April 2026

INR260

IND AA+/Stable

INE721A07KF8

29 April 2016

9.05%

29 April 2021

INR150

IND AA+/Stable

INE721A07KG6

25 May 2016

9.05%

25 May 2023

INR500

IND AA+/Stable

INE721A07KH4

9 June 2016

8.85%

10 June 2019

INR200

IND AA+/Stable

INE721A07KI2

9 June 2016

9.05%

9 June 2023

INR125

IND AA+/Stable

INE721A07KJ0

10 June 2016

8.92%^

10 June 2021

INR50

IND AA+/Stable

INE721A07KK8

30 June 2016

9.05%

30 June 2021

INR850

IND AA+/Stable

INE721A07KM4

5 July 2016

9.00%

5 July 2019

INR800

IND AA+/Stable

INE721A07KN2

5 July 2016

9.00%

5 August 2019

INR850

IND AA+/Stable

INE721A07KP7

19 July 2016

9.05%

19 July 2023

INR750

IND AA+/Stable

INE721A07KZ6

3 August 2016

8.85%

3 August 2021

INR4,500

IND AA+/Stable

INE721A07LD1

8 August 2016

8.87%

8 August 2026

INR1,100

IND AA+/Stable

INE721A07LH2

30 August 2016

8.45%

30 August 2021

INR200

IND AA+/Stable

INE721A07LS9

24 March 2017

8.10%

24 March 2020

INR100

IND AA+/Stable

INE721A07LT7

27 March 2017

7.91%^

29 June 2018

INR5,000

IND AA+/Stable

INE721A07LV3

29 March 2017

1st November 2017: 7.65% p.a.          29 March 2018               : 7.75% p.a.        29 September 2018          :  7.85% p.a.       . 29 March 2019               : 7.90% p.a.        30 September 2019: 7.95% p.a.        27th March 2020                 : 8.05% p.a.

27 March 2020

INR5,000

IND AA+/Stable

INE721A07LW1

29 March 2017

29 March 2018             : 7.75% p.a.  
29 March 2019             : 7.90% p.a.
 27 March 2020            : 8.10% p.a.

27 March 2020

INR2,500

IND AA+/Stable

INE721A07LX9

29 March 2017

8.10%

27 March 2020

INR2,500

IND AA+/Stable

INE721A07LY7

29 March 2017

7.89%^

29 June 2018

INR1,000

IND AA+/Stable

INE721A07LZ4

30 March 2017

8.10%

29 May 2020

INR1,250

IND AA+/Stable

INE721A07MA5

30 March 2017

1st year Coupon= 8.10% p.a.2nd & 3rd Year Coupon = 1 Year CD rate +1.50% p.a.

30 March 2020

INR2,500

IND AA+/Stable

INE721A07MB3

30 March 2017

8.15%

30 March 2022

INR50

IND AA+/Stable

INE721A07MC1

31 March 2017

8%^

28 March 2019

INR500

IND AA+/Stable

INE721A07MD9

31 March 2017

8.15%

31 March 2022

INR450

IND AA+/Stable

INE721A07MF4

9 June 2017

Zero Coupon
 If Put exercised on 9 July 2018 - 7.75%
If not exercised (on maturity) - 7.95%

7 June 2019

INR1,000

IND AA+/Stable

INE721A07MG2

9 June 2017

Zero Coupon
If Put exercised after 13 Months  - 7.75%
If Put exercised after 24 months  - 7.95%
If Put exercised after 31 months  - 7.95%
If not exercised (on maturity)      - 8.00%

9 June 2020

INR2,500

IND AA+/Stable

INE721A07MH0

12 June 2017

If Put exercised on 12 July 2018 - 7.75%
If not exercised (on maturity) - 7.95%

12 June 2019

INR2,500

IND AA+/Stable

INE721A07MI8

12 June 2017

7.85%

12 June 2018

INR3,000

IND AA+/Stable

INE721A07ML2

16 June 2017

7.92%

14 June 2019

INR1,000

IND AA+/Stable

INE721A07MN8

27 June 2017

7.84%

26 June 2020

INR850

IND AA+/Stable

INE721A07MX7

22 August 2017

7.73%

22 August 2022

INR2,750

IND AA+/Stable

INE721A07NA3

30 November 2017

8.00%

30 November 2022

INR700

IND AA+/Stable

INE721A07HI8

15 July 2014

10.00%

15 July 2019

INR3,841

IND AA+/Stable

INE721A07HJ6

15 July 2014

10.15%

15 July 2021

INR1,361

IND AA+/Stable

INE721A07HK4

15 July 2014

9.57%

15 July 2019

INR278

IND AA+/Stable

INE721A07HL2

15 July 2014

9.71%

15 July 2021

INR352

IND AA+/Stable

INE721A07HN8

15 July 2014

-

15 July 2019

INR152

IND AA+/Stable

INE721A07HO6

15 July 2014

-

15 July 2021

INR281

IND AA+/Stable

 

Total

 

 

INR101,250

 

 

NCDs raised under the rated limit but redeemed

INR32,765

 

 

Unutilised NCD limit

INR90,985

 

^Zero coupon bond


COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity level of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.

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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

    Pankaj Naik

    Associate Director
    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 40001723

    Media Relation

    Archana Tiwari

    Sr. Manager – Corporate Communications & Investor Relations
    +91 22 40001729