Shriram Transport Finance Company Ltd has announced revision/change in the Company's Long-Term Issuer Default Rating, Short Term Issuer Default Rating, Local Currency Long Term Issuer Default Rating, Senior unsecured Long Term Rating and Senior secured Long Term Rating by Fitch Ratings.
Long Term Issuer Default Rating - BB+ Rating Outlook Stable (BB Rating Watch Negative (Downgrade))
Short Term Issuer Default Rating - B B (Affirmed)
Local Currency Long Term Issuer Default Rating - (BB+ Rating Outlook Stable BB Rating Watch Negative (Downgrade))
Senior unsecured Long Term Rating - BB+ (BB Rating Watch Negative (Downgrade))
Senior secured Long Term Rating - BB+ (BB Rating Watch Negative (Downgrade))
The downgrade and RWN on STFC's ratings largely stems from the deterioration in the operating environment for India NBFIs. STFC's portfolio will face increased asset-quality risks as the commercial vehicle portfolio is more exposed to business activity in India that will be hampered by the measures taken to tackle the coronavirus.
Fitch expects delays in loan collections and asset recoveries if current restrictions on business activity are prolonged. This would place pressure on near-term on asset quality, credit costs and profitability. This comes as STFC already has the highest NPL ratio of Fitch's rated portfolio at 8.7% at end-December 2019, with credit costs accounting for a significant 38%-58% of pre-provision profit. However, STFC's credit costs have been much lower than NPLs and remained between 2.2%-3.8% of average loans over FY17-3QFY19.
STFC's ratings remain at the higher end of rated peers' as it has a dominant position in used commercial-vehicle financing, experienced management, and an established track record in managing collections and recoveries while maintaining satisfactory earnings through past credit cycles.
Negative action on the IDR may result if the funding and liquidity profile were to weaken. A rise in non-performing assets leading to higher credit costs and impaired profitability could also weigh on the rating, especially if it leads to a lower leverage tolerance, given STFC's riskier business profile. Leverage consistently greater than 5.5x (September 2019: 5.3x) would weigh on the IDR.
An upgrade of STFC's Long-Term IDR would depend on a material strengthening in the operating environment, including the domestic financial system - which is unlikely in the near term - assuming other rating factors are also expected to be sustained at levels commensurate with a higher rating.
Shares of SHRIRAM TRANSPORT FINANCE CO.LTD. was last trading in BSE at Rs.724.45 as compared to the previous close of Rs. 652.5. The total number of shares traded during the day was 117585 in over 6618 trades.
The stock hit an intraday high of Rs. 815 and intraday low of 670. The net turnover during the day was Rs. 86867321.