Shriram Transport Finance Q3FY17 Concall Summary

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Performance Highlights

STFC Q3FY17 Performance
  • Company raised 650Cr through Masala bonds at 8.5% coupon rate with tenure of 12 months listed in Singapore stock exchange
  • India is moving towards BS4 vehicle which will increase the price by 50,000-200,000 by 1 April 2017, which in turn will increase the loan demand before 31st March.
  • New or young vehicle will be in demand due to increase in diesel prices.  
  • Cost to income ratio will be 22-23% due to increase in employee cost but company expects to maintain this rate between 22-24% over longer term
  • Company is focussing on establishing sustainable relationship with people in rural areas to mitigate the impact of demonetisation
  • Shriram equipment finance book size is 1157Cr, and NPA is 890Cr. Total segment-wise Disbursement - New vehicle 565Cr, used vehicle 7560Cr
  • The demand in this quarter demand is expected to be driven by passenger vehicles
  • ROA will increase if credit cost declines from next year. Full impact of such decline will be seen in FY19

Asset Quality

STFC NPA Analysis
  • GNPA (Gross Non Performing Assets) is 6.63% this quarter. If the company would not have followed RBI guidelines it would have been 7.3%, which is 448 Cr of addition in GNPA
  • NPA recognition on a 180 dpd basis upto Q3 FY16
  • The company has transitioned to NPA recognition on a 150 dpd basis from Q4 FY16
  • Provision Coverage Ratio (PCR) on 150 dpd NPA at ~70.45% in FY16 and 75.44% as on Q3 FY17
  • Pursuant to the amalgamation of Shriram Equipment Finance Co. Ltd. – NPA (on 150 dpd basis) of Rs. 893 Cr have been included in the standalone financials for FY16

Employee Count

STFC Employee County Q3FY17
  • Company is considering addition of 1500-2000 in manpower by Quarter end, as demand is expected to be healthy in Q4.
  • In the last 9 months, 600 people from Equipment finance quit job after merger. Rest around 2,000 personnel quit due to seasonal and other reason

Used Vehicle Segment

  • The focus is on vehicle aged between 5-10 years, 3-7 years being the focal point. At the same time discouraging finance for vehicles that are older than 10 years
  • Banks are usually reluctant to enter into used vehicle segment as it requires more expertise, good valuation, proper documentation and reach in the market.
  • Company has 90% used vehicle and 10% new vehicle in books. The composition is expected to remain same going forward with maximum percentage of new vehicles touching 15%, may be
  • Customers using Used Vehicles will not shift to BS IV

Effects of Demonetisation

  • The cash component in collections was 60% but the situation remained in control. There were short term disruptions in initial days following demonetisation but soon thereafter customers began paying by cheques or online payment portals
  • They introduced an app for online payment and also set up Point of Sale (POS) machines in the branch and field offices to enable payments through debit cards
  • Monsoon was good and sowing was robust
  • Loan disbursement was lower by 22% YoY mainly because transaction in vehicles was delayed over uncertainty over cash withdrawal or cheque payments
  • January is going good, collections are improving, more and more people are paying through non cash channel
  • Securitisation slowed down with banks due to demonetisation, expect to do Rs.2000Cr this quarter
  • Impact on smaller vehicle segment which is based mainly in rural market was maximum whereas large vehicles or vehicles in urban markets did not suffer much. Collection efficiency was around 90% in Q3 FY17
  • Cash collections have reduced by 40% compared to last month

Impact of GST Act

  • GST is set to improve the per day run of Indian vehicles which is just 200 Kms as compared to 800 Kms of International average
  • Growth in demand of vehicles is expected as more and more companies will adopt just in time system for inventory which will lead to lesser usage of warehouse and higher use of transportation
  • Past trends have indicated that the number of vehicles increases in countries where GST is implemented
  • New vehicle sales will be lower in Q1 due to uncertainty over GST