Workers load sacks of barley onto a truck at a wholesale grain market in Rewari, Haryana, India. (Photographer: Anindito Mukherjee/Bloomberg)

Shriram Transport Shrugs Off Headwinds, Retains Growth Forecast

Better efficiency of new Bharat Stage-IV vehicles, higher fuel prices and a muted growth in used commercial vehicles are headwinds that could hurt growth at Shriram Transport Finance Ltd., said an Investec Securities report earlier this month. But the company thinks otherwise.

The rise in fuel prices has been offset by better efficiency in vehicles after the removal of state borders following the implementation of the goods and services tax, Chief Executive Officer and Managing Director Umesh Revankar told BloombergQuint.

He expects the more expensive BS-IV and BS-VI vehicles to pull up the prices of used vehicles. The demand for used commercial vehicles is growing, driven by the government’s spending on infrastructure and the agricultural sector on the back of normal monsoons, Revankar said.

This will allow the company to maintain the loan book growth forecast “somewhere between 18 and 20 percent compounded annual growth rate”, he said.

The non-bank finance company, which provides financing for pre-owned commercial vehicles, yesterday said it would raise up to Rs 5,000 crore through a public issue of bonds to augment its business growth. It will raise the amount by issuing 5 crore secured redeemable non-convertible debentures. The bonds will be available for a 3-10 years tenor and will carry a coupon of 9-9.4 percent.

The funds will be used for onward lending, financing, and for payment of interest and principal of existing borrowings of the company and for general corporate purposes, the company said.

While the cost of financing Rs 5,000 crore may seem high, the company expects to be able to pass on the excess cost to consumers without difficulty, Revankar said.

The company’s non-performing loans rose over the last two years to 9.15 percent of the loan book as it shifted to the 90-day loan period format from 120 days according to the Reserve Bank of India’s norms.

“We had given a guidance to the market that it [bad loans] will grow by 1.5 percent. We have almost maintained that,” Revankar said. “In fact, we have managed that much better because we also managed demonetisation and the GST issue in the two years during this shift.”

Revankar also expects the non-performing loans to lower this year as the company better communicates the norms of the transition to consumers.