Shriram Transport Finance Co. Ltd has expectedly reported a sharp drop in growth rates. Net interest income grew by 22% in the March quarter, compared with a growth of 56% in the three quarters.
With demand for commercial vehicles coming off sharply since the second half of the previous fiscal year, the drop in growth isn’t surprising. According to the management, the company has been going slow in disbursing loans because of concerns that delinquencies may rise owing to the economic slowdown. Disbursements have dropped by at least 25% in the last two quarters and this is reflected in the drop in the growth of net interest income. In the quarter, the company financed 2,700 vehicles, compared with 3,600 vehicles in the year-ago period.
But considering that sales of commercial vehicles have been falling for quite a few months now, the company’s performance is noteworthy. What has insulated it to a large extent is its focus on financing used vehicles, as well as its tilt towards light commercial vehicles that ply short distances. Managing director R. Sridhar points out that about 70% of the firm’s outstanding disbursements is in the used vehicles space. In terms of fresh disbursements in recent months, because of the pressure on new vehicle sales, the ratio stands higher at 85%.
Besides, 85% of vehicles against which disbursements have been made are small-sized commercial vehicles which ply for short distances on state highways. The category of truck operations that has been hit in recent times is the one that plies long distances on national highways, ferrying industrial goods. Shriram’s exposure to this segment is relatively low. For this reason, its delinquencies have also been maintained at relatively low levels.
But this is not to say that the company hasn’t been affected. The sharp drop in growth rates in the March quarter is testimony to the impact the company has seen already. Having said that, the slowdown hasn’t been as bad as some had feared, and as a result, the company expects disbursements to grow by 20%-plus in this financial year. The markets seem to be comfortable with that, what with the stock having risen by about 35% in the past two months, tracking the rise in the broad market.
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