By Pankaj Naik

This announcement corrects the version published on 24 December 2018 to include certain issuances in the Annexure for non-convertible debenture (INR7,567.9 million) and subordinated debt (INR18,100 million). An amended version is as follows:

India Ratings and Research (Ind-Ra) has rated Shriram Transport Finance Company Limited’s (STFC) subordinated debt as follows:

Instrument Type

Date of Issuance

Coupon Rate

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Subordinated debt*

-

-

-

INR20,000

IND AA+/Stable

Assigned

*Details in Annexure

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-fourths of the market share among the organised used vehicle financing space. STFC has experience in managing loan portfolio over multiple business cycles marked by numerous headwinds. It has 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 financing segment. STFC’s expertise lies in the valuation of used assets and effective collection mechanism that helps in managing credit costs. However, STFC faces tough competition, as many non-banking finance companies are trying to expand into the used CV financing space.

Credit Cost Stabilisation Remains to be Seen:
 STFC transitioned to the 90-day non-performing asset (NPA) recognition norm in 4QFY18. The transition led to a rise in headline gross NPA to 9.2% (FY17: 8.2%, 120+ days past due (dpd)). In addition, its credit cost increased to 405bp in FY18 from 358bp in FY17.

STFC adopted Indian Accounting Standards from 1QFY19, leading to the softening of credit cost (1QFY19: 2.3%, 1HFY19: 2.7% of average loans) based on the probability of default and loss given default estimates. However, it remains to be seen whether lower provisioning on loans is a permanent structural shift. STFC has also focused on shifting its portfolio towards newer used vehicles and consequently focused on strong credit profile customers. This transition has led to pressure on yields. At the same time, STFC focusing on deeper rural geographies to grow its books could result in higher yields. However, its ability to manage credit cost remains to be seen. 

Although the monsoons started on a positive note, the spatial distribution is uneven and some areas face deficiency, which may have a bearing on certain geographical pockets and subsequently affecting rural cash flows. Furthermore, a rise in fuel price without a commensurate increase in freight rates are compressing borrowers’ profitability and, hence, their loan repayment capacity. 

Reasonable Capitalisation:
STFC’s Tier I ratio was 14.3% in 2QFY19 (FY18: 14.2%; FY17: 15.2%). Its net worth increased, primarily due to lower credit cost and income recognition on NPAs as a result of the adoption of Indian Accounting Standards. Given the tight liquidity in capital markets and a higher cost of funds, STFC’s growth plans would be calibrated. Ind-Ra believes internal accruals would be largely sufficient to support modest growth over the medium term. The company plans to operate with a moderate leverage, along with a policy to maintain tier I ratio above 14%, on a steady state basis. 

Reasonable Liquidity:
STFC had a positive cumulative surplus in the one-year time frame of structural liquidity statement as on 30 September 2018. The company also maintains sizeable unutilised bank lines (INR35 billion of cash credit limits as on 30 November 2018) from a variety of banks. The on-balance sheet liquidity (liquid investments and unencumbered cash) stands at INR25 billion against a debt repayment of INR133 billion in the period December 2018-February 2019. STFC can also mobilise funds by way of securitisation; however, the pricing in this market has also hardened. Having said that, in the current tight liquidity environment, excessive reliance on short-term debt could lead to asset-liability mismatch and thus could lead to a refinancing risk.

STFC has diluted its policy of maintaining large on-balance sheet liquidity by way of cash and investment in liquid mutual funds that could have provided strong buffers in the event of sudden liquidity crisis. STFC endeavours to maintain a matched asset-liability maturity profile by restricting its reliance on short-term borrowings to maximum of 7%-8% of the total borrowings (8% as on September 2018).
 

Moderate Profitability:
STFC’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 pressure and transition to newer used vehicles would lead to compression in yields in FY19. Also, the hardening of interest rates in capital markets and costlier bank funding could lead to a rise in the borrowing cost for STFC and would, thus, further compress net interest margin. STFC’s accelerated expansion in rural geographies that offer higher yields could support margins. 

However, STFC’s ability to manage credit cost remains to be seen. Although the adoption of Indian Accounting Standards positively impacted profitability in 1QFY19 as it led to a lower credit cost. 



RATING SENSITIVITIES

Positive: Significantly strengthened stable funding profile that 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 and insurance segments.

FINANCIAL SUMMARY
 

Particulars

FY18

FY17

Total tangible assets (INR million)

828,418

702,937

Total tangible equity (INR million)

121,433

109,399

Net income (INR million)

15,680

12,573

Return on average assets (%)

2.05

1.86

Tier 1 capital (%)

14.2

15.2

Source: STFC


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

3 December 2018

26 March 2018

31 March 2017

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+

NCDs*

Long-term

INR245,000

IND AA+/Stable

IND AA+/Stable

IND AA+/Stable

IND AA+/Stable

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+/Stable/IND A1+

Subordinated debt*

Long-term

INR66,200

IND AA+/Stable

IND AA+/Stable

IND AA+/Stable

IND AA+/Stable

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+/Stable

*Details in 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

INR3,940

IND AA+/Stable

INE721A08DA2

28 March 2018

9.00

28 March 2028

INR9,950

IND AA+/Stable

INE721A08DB0

28 March 2018

8.95

28 April 2025

INR400

IND AA+/Stable

INE721A08DC8

28 November 2018

10.25

26 April 2024

INR17,750

IND AA+/Stable

INE721A08DD6

12 December 2018

10.51

12 December 2028

INR350

IND AA+/Stable

 

 

 

Total utilised

INR34,140

 

 

 

 

Total unutilised

INR32,060

 

 

 

 

Total

INR66,200

 

 

 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

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. 10.00%-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

INE721A07JP9

17 April 2015

9.15

13 March 2019

INR3,000

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

WD (paid in full)

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

INE721A07LX9

29 March 2017

8.10

27 March 2020

INR2,500

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 and 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

8.00^

28 March 2019

INR500

IND AA+/Stable

INE721A07MD9

31 March 2017

8.15

31 March 2022

INR450

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

INR350

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

INE721A07NL0

22 March 2018

8.72

22 March 2023

INR2,415

IND AA+/Stable

INE721A07NO4

26 March 2018

8.72

26 May 2025

INR350

IND AA+/Stable

INE721A07NR7

27 March 2018

8.45

27 March 2020

INR5,600

IND AA+/Stable

INE721A07NS5

27 March 2018

8.72

27 March 2023

INR9,200

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

10.00^

15 July 2019

INR152

IND AA+/Stable

INE721A07HO6

15 July 2014

10.15^

15 July 2021

INR281

IND AA+/Stable

INE721A07NT3

12 July 2018

8.93

12 July 2023

INR1,504

IND AA+/Stable

INE721A07NU1

12 July 2018

9.03

12 July 2028

INR499

IND AA+/Stable

INE721A07NV9

12 July 2018

9.10

12 July 2021

INR22,130

IND AA+/Stable

INE721A07NW7

12 July 2018

9.30

12 July 2023

INR5,402

IND AA+/Stable

INE721A07NX5

12 July 2018

9.40

12 July 2028

INR5,323

IND AA+/Stable

INE721A07NY3

12 July 2018

9.10^

12 July 2021

INR724

IND AA+/Stable

INE721A07NZ0

12 July 2018

9.30^

12 July 2023

INR903

IND AA+/Stable

INE721A07OJ2

6 December 2018

9.85

15 April 2022

INR1,500

IND AA+/Stable

INE721A07OB9

2 November 2018

9.12

2 November 2023

INR946.3

IND AA+/Stable

INE721A07OC7

2 November 2018

9.30

2 November 2028

INR323.4

IND AA+/Stable

INE721A07OD5

2 November 2018

9.40

2 November 2021

INR2077.7

IND AA+/Stable

INE721A07OE3

2 November 2018

9.50

2 November 2023

INR1143.2

IND AA+/Stable

INE721A07OF0

2 November 2018

9.70

2 November 2028

INR389.8

IND AA+/Stable

INE721A07OG8

2 November 2018

9.40^

2 November 2021

INR766.2

IND AA+/Stable

INE721A07OH6

2 November 2018

9.50^

2 November 2023

INR421.3

IND AA+/Stable

 

Total

 

 

INR138,648

 

 

NCDs raised under the rated limit but redeemed

INR68,818

 

 

Unutilised NCD limit

INR37,534

 

^ Zero coupon bond

 

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (million)

Rating

CP

 

 

11 February 2019

INR10,000

IND A1+

CP

 

 

15 February 2019

INR7,050

IND A1+

CP

 

 

21 February 2019

INR7,050

IND A1+

CP

 

 

31 January 2019

INR4,000

IND A1+

CP

 

 

22 February 2019

INR9,500

IND A1+

CP

 

 

29 January 2019

INR2,000

IND A1+

CP

 

 

1 March 2019

INR4,750

IND A1+

CP

 

 

1 March 2019

INR5,000

IND A1+

CP

 

 

8 March 2019

INR950

IND A1+

CP

 

 

20 March 2019

INR9,500

IND A1+

Total

INR59,800

 

Unutilised

INR15,200

 


COMPLEXITY LEVEL OF INSTRUMENTS

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

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.

ABOUT INDIA RATINGS AND RESEARCH

About India Ratings and Research: India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies and project finance companies. 

Headquartered in Mumbai, Ind-Ra has seven branch offices located in Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata and Pune. Ind-Ra is recognised by the Securities and Exchange Board of India, the Reserve Bank of India and National Housing Bank. 

India Ratings is a 100% owned subsidiary of the Fitch Group.

For more information, visit www.indiaratings.co.in.

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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

    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121