India Ratings Affirms Shriram Transport Finance Company & its NCDs at 'IND AA+'/Stable; Off RWN

India Ratings and Research (Ind-Ra) has affirmed Shriram Transport Finance Company Limited's (STFC) Long-Term Issuer Rating at 'IND AA+' while resolving the Rating Watch Negative (RWN). The Outlook is Stable. The Short-Term Issuer Rating has been affirmed at 'IND A1+'.

Ind-Ra had placed the ratings on RWN on 4 May 2020 following the measures taken by the authorities to contain the spread of the COVID-19 pandemic, and the resulting uncertainty on the duration of measures undertaken and the impact of the same on STFC's funding liquidity and credit costs. The agency had taken a cautious stance towards the tightening market conditions, which could have impacted the funding sources and funding costs for STFC, which have already been elevated since the onset of the liquidity crisis for non-banking finance companies (NBFCs) in September 2018.

The RWN resolution reflects a significant recovery in the funding and liquidity scenario, and a gradual month-on-month recovery in STFC's operations and key operating metrics, including collections and disbursements over April-October 2020. With an improvement in liquidity situation, STFC raised funds from a mix of sources; although the incremental borrowings through foreign currency borrowings and funding from capital markets is likely to take longer to normalise. Furthermore, the borrowing cost witnessed some softening, although remains higher than the borrowers of similarly-rated peers, and hence offers a material scope for reduction. STFC raised INR14.9 billion of equity capital in 2QFY21 through a rights issue, leading to an increase in its Tier I capital to 20.1%, and consequently boosting its credit cost absorbing ability in case of an asset quality shock, as well as provides enough strength to grow, as and when the demand revives. Ind-Ra, however, believes that management would be cautious on the fresh exposures and would focus on the credit quality. On the provisioning front, STFC created a buffer of INR22.8 billion (2.0% of assets under management (AUM) as of 2QFY21), over and above the requirement under the expected credit loss model with an improvement in coverage for stage 3 assets to 39.7% in 2QFY21 (3QFY20: 32.1%).

The sustainability and a further improvement in the collection efficiency (October 2020: 95%), and the full impact of the ongoing challenges on the asset quality on softer-bucket delinquencies and transition of softer buckets to stage 3 delinquencies remain key monitorables in the near-to-medium term, given a standstill on the asset quality movement due to an ongoing case in the Supreme Court and the availability of the Reserve Bank of India's (RBI) one-time debt restructuring window till 31 December 2020. Ind-Ra's base case estimate suggests the company's operating profit provides reasonable cushion to absorb the incremental credit costs.

Shares of SHRIRAM TRANSPORT FINANCE CO.LTD. was last trading in BSE at Rs.1062.95 as compared to the previous close of Rs. 1003.35. The total number of shares traded during the day was 483933 in over 20160 trades.

The stock hit an intraday high of Rs. 1086.75 and intraday low of 1006.15. The net turnover during the day was Rs. 513897940.

Source : Equity Bulls

Keywords