By Karan Gupta

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

Instrument Type

Date of Issuance

Coupon Rate

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Retail NCDs*

-

-

-

INR100,000

IND AA+/Stable

Assigned

*Details in Annexure

KEY RATING DRIVERS

Market Dominance in Used CV Financing Space: STFC is the largest financier of used vehicles in India. Ind-Ra estimates the company to have three-fourths of the market share in the organised used vehicle financing segment. STFC has experience in managing loan portfolios over multiple business cycles, marked by numerous headwinds. The company is skilled in financing commercial vehicles (CVs) through its vast experience and efficient management of credit costs 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 an effective collection mechanism enables the company to manage its 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 Moderated in FY19 but Sustainability Remains to be Seen: STFC adopted Indian Accounting Standards from 1QFY19, leading to the softening of credit cost (FY19: 2.5%; FY18: 4.1%; FY17: 3.6%) based on the probability of default and loss given default estimates. Gross NPA also declined to 8.37% in FY19 (FY18: 9.39%) on Ind AS basis, and to 8.29% (9.15%) on IGAAP basis.

However, it remains to be seen whether lower provisioning on loans is a permanent structural shift. STFC’s profile has been shifting towards newer used vehicles, leading to an increasing focus on customers with strong credit profiles. This transition has resulted in pressure on yields. At the same time, STFC has been concentrating on deeper rural geographies to grow its books; this could result in higher yields. However, the company’s ability to manage credit cost remains to be seen.

The Indian Meteorological Department (IMD) has forecast normal monsoons for 2019, which bodes well for the rural economy. However, the South West Monsoon has been delayed, and overall rainfall deficiency has been pegged at 43% in the first half of June. The agency believes that, while it is too early to factor in the impact of the monsoon, rainfall deficiency in certain geographies would affect rural cash flows, which would impact STFC’s portfolio growth as well as asset quality. 

Capitalisation Remains at Reasonable Levels: STFC’s tier I ratio was at 15.6% in FY19 (FY18: 14.2%). The capital adequacy ratio (CAR) also improved to 20.3% in FY19 from 16.9% in FY18, mainly because of an increase in tier II capital; the increase in tier I capital was due to higher internal accrual with an improvement in profitability on a yoy basis. Given the continuing tight liquidity conditions in the capital markets and elevated premium for longer term 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, 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 31 March 2019. The company also maintains sizeable unutilised bank lines (INR28.8 billion of cash credit limits as of mid-June 2019) from a variety of banks. The on-balance sheet liquidity (liquid investments and unencumbered cash) stood at INR60.1 billion as of mid-June 2019 against a scheduled debt repayment of INR117.9 billion during June 2019-August 2019. STFC can also mobilise funds by way of securitisation; however, the pricing in this market has hardened. Having said that, in the current tight liquidity environment, excessive reliance on short-term debt could lead to asset-liability mismatch, giving rise 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, which could have provided strong buffers in the event of a sudden liquidity crisis. The company endeavours to maintain a matched asset-liability maturity profile by restricting its reliance on short-term borrowings to a maximum of 7%-8% of the total borrowings.

Moderate Profitability: STFC’s profitability recovered modestly in FY19 after having been under pressure over the past few years (pre-provisioning operating profit/credit costs in FY19: 2.6x; FY18: 1.8x; FY17: 1.8x; FY11-FY16: average 3.2x), primarily due to a decline in credit costs. Ind-Ra believes the slowdown in AUM growth on a yoy basis in the new vehicles segment provided tailwinds to yields in FY19. The company’s net interest margin was under pressure in FY19, as it faced challenges with respect to borrowing costs owing to the hardening of interest rates in capital markets and costlier bank funding. the agency believes that STFC’s accelerated expansion in rural geographies that offer higher yields could support margins over the near-to-medium term.

 


RATING SENSITIVITIES

Positive: A 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

FY19

FY18

Total tangible assets (INR million)

1,052,168

828,418

Total tangible equity (INR million)

157,606

121,433

Net income (INR million)

25,640

15,680

Return on average assets (%)

2.53

2.05

Tier 1 capital (%)

15.62

14.24

Source: STFC, Ind-Ra

Note: All financial numbers for FY18 are on IGAAP basis and for FY19 on IND AS basis

 


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

24 December 2018

26 December  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

INR345,000

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

INE721A07JP9

17 April 2015

9.15

13 March 2019

INR 3,000.00

WD (paid in full)

INE721A07JV7

15 March 2016

9.1

15 March 2019

INR 100.00

WD (paid in full)

INE721A07MC1

31 March 2017

8.00^

28 March 2019

INR 500.00

WD (paid in full)

INE721A07JT1

14 December 2015

8.75^

11 April 2019

INR 350.00

WD (paid in full)

INE721A07KH4

9 June 2016

8.85

10 June 2019

INR 200.00

WD (paid in full)

INE721A07ML2

16 June 2017

7.92

14 June 2019

INR 1,000.00

WD (paid in full)

INE721A07KM4

05 July 2016

9

05 July 2019

INR 800.00

IND AA+/Stable

INE721A07HI8

15 July 2014

10

15 July 2019

INR 3,841.00

IND AA+/Stable

INE721A07HK4

15 July 2014

9.57

15 July 2019

INR 278.00

IND AA+/Stable

INE721A07HN8

15 July 2014

10.00^

15 July 2019

INR 152.00

IND AA+/Stable

INE721A07HP3

21 July 2014

10

19 July 2019

INR 5,000.00

IND AA+/Stable

INE721A07HQ1

5 August 2014

10

5 August 2019

INR 5,000.00

IND AA+/Stable

INE721A07KN2

5 July 2016

9

5 August 2019

INR 850.00

IND AA+/Stable

INE721A07HR9

28 August 2014

10

28 August 2019

INR 2,500.00

IND AA+/Stable

INE721A07HV1

12 September 2014

10

12 September 2019

INR 1,250.00

IND AA+/Stable

INE721A07HZ2

19 September 2014

9.75

19 September 2019

INR 500.00

IND AA+/Stable

INE721A07IS5

28 November 2014

9.95

28 November 2019

INR 750.00

IND AA+/Stable

INE721A07JC7

19 January 2015

9.35

17 January 2020

INR 150.00

IND AA+/Stable

INE721A07JE3

4 February 2015

9.15

4 February 2020

INR 300.00

IND AA+/Stable

INE721A07LS9

24 March 2017

8.1

24 March 2020

INR 100.00

IND AA+/Stable

INE721A07LX9

29 March 2017

8.1

27 March 2020

INR 2,500.00

IND AA+/Stable

INE721A07NR7

27 March 2018

8.45

27 March 2020

INR 5,600.00

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

INR 2,500.00

IND AA+/Stable

INE721A07LZ4

30 March 2017

8.1

29 May 2020

INR 1,250.00

IND AA+/Stable

INE721A07MN8

27 June 2017

7.84

26 June 2020

INR 350.00

IND AA+/Stable

INE721A07JS3

4 December 2015

8.8

4 December 2020

INR 150.00

IND AA+/Stable

INE721A07JW5

18 March 2016

9.25

18 March 2021

INR 1,000.00

IND AA+/Stable

INE721A07KA9

29 March 2016

9.25

29 March 2021

INR 750.00

IND AA+/Stable

INE721A07KC5

13 April 2016

9.15

13 April 2021

INR 5,160.00

IND AA+/Stable

INE721A07KF8

29 April 2016

9.05

29 April 2021

INR 150.00

IND AA+/Stable

INE721A07KJ0

10 June 2016

8.92^

10 June 2021

INR 50.00

IND AA+/Stable

INE721A07KK8

30 June 2016

9.05

30 June 2021

INR 850.00

IND AA+/Stable

INE721A07NV9

12 July 2018

9.1

12 July 2021

INR 22,130.00

IND AA+/Stable

INE721A07NY3

12 July 2018

9.10^

12 July 2021

INR 724.00

IND AA+/Stable

INE721A07HJ6

15 July 2014

10.15

15 July 2021

INR 1,361.00

IND AA+/Stable

INE721A07HL2

15 July 2014

9.71

15 July 2021

INR 352.00

IND AA+/Stable

INE721A07HO6

15 July 2014

10.15^

15 July 2021

INR 281.00

IND AA+/Stable

INE721A07KZ6

3 August 2016

8.85

3 August 2021

INR 4,500.00

IND AA+/Stable

INE721A07LH2

30 August 2016

8.45

30 August 2021

INR 200.00

IND AA+/Stable

INE721A07IA3

19 September 2014

9.85

19 September 2021

INR 500.00

IND AA+/Stable

INE721A07OD5

2 November 2018

9.4

2 November 2021

INR 2,077.70

IND AA+/Stable

INE721A07OG8

2 November 2018

9.40^

2 November 2021

INR 766.20

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

INR 5,000.00

IND AA+/Stable

INE721A07OO2

6 February 2019

 9.40

6 February 2022

INR 1,799.98

IND AA+/Stable

INE721A07OR5

6 February 2019

 Cumulative (Effective Yield (per annum)-9.40%)

6 February 2022

INR 670.39

IND AA+/Stable

INE721A07MB3

30 March 2017

8.15

30 March 2022

INR 50.00

IND AA+/Stable

INE721A07MD9

31 March 2017

8.15

31 March 2022

INR 450.00

IND AA+/Stable

INE721A07OJ2

6 December 2018

9.85

15 April 2022

INR 1,500.00

IND AA+/Stable

INE721A07MX7

22 August 2017

7.73

22 August 2022

INR 2,750.00

IND AA+/Stable

INE721A07NA3

30 November 2017

8

30 November 2022

INR 700.00

IND AA+/Stable

INE721A07NL0

22 March 2018

8.72

22 March 2023

INR 2,415.00

IND AA+/Stable

INE721A07NS5

27 March 2018

8.72

27 March 2023

INR 9,200.00

IND AA+/Stable

INE721A07KG6

25 May 2016

9.05

25 May 2023

INR 500.00

IND AA+/Stable

INE721A07KI2

9 June 2016

9.05

9 June 2023

INR 125.00

IND AA+/Stable

INE721A07NT3

12 July 2018

8.93

12 July 2023

INR 1,504.00

IND AA+/Stable

INE721A07NW7

12 July 2018

9.3

12 July 2023

INR 5,402.00

IND AA+/Stable

INE721A07NZ0

12 July 2018

9.30^

12 July 2023

INR 903.00

IND AA+/Stable

INE721A07KP7

19 July 2016

9.05

19 July 2023

INR 750.00

IND AA+/Stable

INE721A07OB9

2 November 2018

9.12

2 November 2023

INR 946.30

IND AA+/Stable

INE721A07OE3

2 November 2018

9.5

2 November 2023

INR 1,143.20

IND AA+/Stable

INE721A07OH6

2 November 2018

9.50^

2 November 2023

INR 421.30

IND AA+/Stable

INE721A07OM6

6 February 2019

 9.12

6 February 2024

INR 877.02

IND AA+/Stable

INE721A07OP9

6 February 2019

 9.50

6 February 2024

INR 1,001.12

IND AA+/Stable

INE721A07OS3

6 February 2019

 Cumulative (Effective Yield (per annum)- 9.50%)

6 February 2024

INR 419.39

IND AA+/Stable

INE721A08DF1

22 January 2019

9.9

21 June 2024

INR 5,000.00

IND AA+/Stable

INE721A07HY5

18 September 2014

10.25

18 September 2024

INR 3,000.00

IND AA+/Stable

INE721A07IG0

10 October 2014

10.25

10 October 2024

INR 4,750.00

IND AA+/Stable

INE721A07II6

31 October 2014

10.1

31 October 2024

INR 250.00

IND AA+/Stable

INE721A07IO4

13 November 2014

10

13 November 2024

INR 3,580.00

IND AA+/Stable

INE721A07IR7

28 November 2014

9.9

28 November 2024

INR 1,000.00

IND AA+/Stable

INE721A07NO4

26 March 2018

8.72

26 May 2025

INR 350.00

IND AA+/Stable

INE721A07JX3

18 March 2016

9.3

18 March 2026

INR 1,000.00

IND AA+/Stable

INE721A07KB7

29 March 2016

9.3

27 March 2026

INR 1,450.00

IND AA+/Stable

INE721A07KD3

13 April 2016

9.22

13 April 2026

INR 1,790.00

IND AA+/Stable

INE721A07KE1

22 April 2016

9.2

22 April 2026

INR 260.00

IND AA+/Stable

INE721A07LD1

8 August 2016

8.87

8 August 2026

INR 1,100.00

IND AA+/Stable

INE721A07NU1

12 July 2018

9.03

12 July 2028

INR 499.00

IND AA+/Stable

INE721A07NX5

12 July 2018

9.4

12 July 2028

INR 5,323.00

IND AA+/Stable

INE721A07OC7

2 November 2018

9.3

2 November 2028

INR 323.40

IND AA+/Stable

INE721A07OF0

2 November 2018

9.7

2 November 2028

INR 389.80

IND AA+/Stable

INE721A07ON4

6 February 2019

 9.3

6 February 2029

INR 263.80

IND AA+/Stable

INE721A07OQ7

6 February 2019

 9.7

6 February 2029

INR 341.49

IND AA+/Stable

 

 

 

 

 

 

 

Total

 

 

INR 143,871.09

 

 

NCDs raised under the rated limit but redeemed

INR 70,368.26

 

 

Unutilised NCD limit

INR 130,760.65

 

 

Total rated Limit

INR 345,000.00

 

^ Zero coupon bond

 

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (million)

Rating

CP

7 February 2019

8.48

15 July 2019

INR 1,400

IND A1+

CP

8 February 2019

8.48

15 July 2019

INR 1,350

IND A1+

CP

15 May 2019

7.95

14 August 2019

INR 7,050

IND A1+

CP

24 May 2019

7.3

29 July 2019

INR 5,000

IND A1+

CP

28 May 2019

7.3

27 August 2019

INR 1,350

IND A1+

 

 

Total

INR 16,150.00

 

 

 

Unutilised

INR 58,850.00

 

 

 

Total limit Rated

INR 75,000.00

 

 


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

    Karan Gupta

    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 40001744

    Media Relation

    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121